In the Journal Entry of forfeiture of shares issued at a premium, the…

In the Journal Entry of forfeiture of shares issued at a premium, the Share Capital Account is:-

Answer & explanation

Correct answer: option 4

The correct answer is Option (4) → Debited with the called up amount (excluding premium)

On forfeiture, the company reverses the entries made for the forfeited shares, so Share Capital Account is debited with the amount called up on them so far. Share capital is always recorded at face value, so the premium is never part of this debit. If the premium has already been received, it stays in the Securities Premium Account and is not debited at all; only if it is still unpaid is the Securities Premium Account also debited.

Option (1) Debited with the called up amount (including premium) — Incorrect. The premium was never credited to Share Capital Account, so it cannot be reversed out of it.

Option (2) Debited with the face value amount (including premium) — Incorrect. Premium never sits in Share Capital Account, and the face value may not have been fully called up.

Option (3) Debited with the face value amount (excluding premium) — Incorrect. Only the amount called up has been credited to share capital, and only that can be reversed.

NCERT (2026-27 edition):
Forfeiture of Shares – “… Forfeiture of Shares issued at a Premium: If shares were initially issued at a premium and the premium amount has been fully realised, but some of the shares are forfeited due to non-payment of call money, the accounting treatment for forfeiture shall be on the same pattern as in the case of shares issued at par. The important point to be noted in this context is that the securities premium account is not to be debited at the time of forfeiture if the premium has been received in respect of the forefeited shares and the amount of forfeiture shall be excluding premium amount.”

NCERT (2026-27 edition):
Forfeiture of Shares – “… When shares are forefeited all entries relating to the shares forfeited except those relating to premium, already recorded in the accounting records must be reversed. Accordingly, share capital account is debited with the amount called-up in respect of shares are forfeited and crediting the respective unpaid calls accounts’s or calls in arrears account with the amount already received.”