Lesson 29: Reissue of Forfeited Shares
Understand the legal procedure and accounting treatment for reissuing shares that have been forfeited due to non-payment of calls. Learn the maximum permissible discount limits, journal entries for reissue under various modes (Par, Premium, Discount), proportional allocation for partial reissues, and the transfer of surplus balances to Capital Reserve.
Meaning, Nature & Reissue Price
What is Reissue of Shares?
When shares are forfeited, the membership of the defaulting shareholder is cancelled, old share certificates are revoked, and the shares become the property of the company. The company has the legal right to sell these forfeited shares to new purchasers. This sale is known as the Reissue of Forfeited Shares.
Special Characteristics of Reissue
- No prospectus or general public offer is required.
- Payment is usually collected in a single lumpsum instalment.
- Approved via a resolution passed by the Board of Directors.
- Shares can be reissued at Par, at Premium, or at Discount.
Maximum Permissible Discount Rules (Minimum Reissue Price Limit)
A company can reissue forfeited shares at a discount (a price below nominal/paid-up value). However, the discount allowed on reissue CANNOT exceed the amount forfeited (already received) on those shares.
Max Permissible Discount = Amount forfeited (received) on those shares.
Max Permissible Discount = Amount forfeited on such shares (amount received).
Max Permissible Discount = Amount forfeited + Original Discount allowed at first issue.
Journal Entries & Accounting Workflow
Standard Accounting Entries for Reissue & Capital Reserve Transfer
| Event / Stage | Journal Entry (In Books of Company) | Explanation |
|---|---|---|
| 1. Reissue at Discount |
Bank A/c Dr. (Amount received) Share Forfeited A/c Dr. (Discount allowed) To Share Capital A/c (Paid-up value) |
Discount allowed is debited to Share Forfeited A/c to reduce the forfeited credit balance. |
| 2. Reissue at Premium |
Bank A/c Dr. (Total cash received) To Share Capital A/c (Paid-up value) To Securities Premium Reserve A/c (Premium) |
No discount is given; entire forfeited amount remains as net profit. |
| 3. Transfer Surplus to Capital Reserve |
Share Forfeited A/c Dr. To Capital Reserve A/c |
Net gain after deducting reissue discount is transferred as a capital profit. |
Partial Reissue & Proportional Allocation
When Only a Portion of Shares are Reissued
When a company forfeits say 100 shares but reissues only 60 shares, the discount allowed on reissue is adjusted ONLY against the proportional forfeited amount of those 60 shares.
(Total Forfeited Amount × Shares Reissued) ÷ Total Shares Forfeited
Unreissued Shares Balance
The forfeited amount belonging to the unreissued shares remains inside Share Forfeited Account. In the Balance Sheet, it is added to Subscribed Share Capital under Shareholders' Funds.
Illustrative Examples (Textbook Solutions)
200 shares of ₹10 each forfeited (₹7 received, ₹3 unpaid final call). Reissued at ₹8 per share fully paid up.
40 shares of ₹50 each forfeited (₹30 received, ₹20 call unpaid). 30 shares reissued at ₹40 per share fully paid up.
Reissue Lifecycle & Capital Reserve Calculator
Explore the 3-stage lifecycle of forfeited shares and use the interactive Capital Reserve & Maximum Discount Calculator.
3-Stage Reissue Lifecycle Pipeline
Sequential flow from non-payment default to final capital reserve gain transfer.
Share Forfeiture
Membership cancelled. Amount received credited to Share Forfeited A/c.
Reissue of Shares
Sold at Par/Premium/Discount. Discount debited to Share Forfeited A/c.
Capital Reserve Transfer
Net surplus gain on reissued shares moved to Capital Reserve A/c.
Interactive Capital Reserve & Reissue Calculator
Input forfeiture and reissue variables to compute maximum discount allowed, proportional allocation, and net capital gain instantly.
5 Golden Rules for Reissue Numerical Problems
Memorize these 5 mandatory accounting principles to ensure 100% accuracy in NIOS board exam questions.
Maximum Permissible Discount Ceiling
Strict Discount LimitThe discount allowed on reissue of forfeited shares can NEVER exceed the amount already forfeited (received) on those specific shares. Any reissue price below this limit is legally prohibited.
Nature of Surplus & Capital Reserve
Capital Gain Treatment
The surplus amount remaining in Share Forfeited Account after adjusting the reissue discount represents a Capital Gain and MUST be transferred to Capital Reserve Account.
Proportional Calculation for Partial Reissue
Partial Reissue Rule
When only a portion of forfeited shares are reissued, calculate Capital Reserve ONLY for the reissued shares: (Total Forfeited ÷ Total Forfeited Shares) × Reissued Shares - Reissue Discount.
Treatment of Original Discount
Discount Shares Reissue
When forfeited shares originally issued at a discount are reissued, the original discount amount must be re-debited to Discount on Issue of Shares A/c, restoring the original capital discount structure.
Unreissued Shares Balance Sheet Presentation
Schedule VI Presentation
The balance in Share Forfeited Account relating to shares that have NOT YET been reissued is shown in the Balance Sheet as an addition to Subscribed Share Capital under Shareholders' Funds.
10 MCQ Practice Quiz
Test your understanding of maximum reissue discount, capital reserve calculations, and partial reissue entries.
10 Interactive 3D Flashcards
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