Due to non-payment of call money, a company has forfeited shares which were issued at premium earlier and the premium amount has been received on those shares. How securities premium reserve account will be shown in the journal entry of forfeiture of shares?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Not shown anywhere
Forfeiture reverses only what was due on the shares and not received. Premium that has already been received belongs to the company and stays in the reserve, so the Securities Premium Reserve Account does not appear in the forfeiture entry.
Why the other options are incorrect
Option (1) Debited with the amount not received on premium — Incorrect. This is the entry when premium is still unpaid on the forfeited shares. Here the premium has been received, so there is nothing unpaid to reverse.
Option (3) Debited with the amount of premium — Incorrect. It would take back premium the company has already received and is entitled to keep.
Option (4) Credited with the amount of premium — Incorrect. The premium was credited when it fell due; crediting it again at forfeiture would count it twice.
NCERT (2026-27 edition): |