1 markMCQSection A

(a) If 600 shares of Rs. 10 each, issued at a premium of Rs. 1 per share are forfeited on which Rs. 8 per share (including premium) have been called and Rs. 6 per share (including premium) have been paid, then 'Share Forfeiture Account' will be by .

(A) credited, Rs. 3,000 (B) debited, Rs. 3,000 (C) debited, Rs. 3,600 (D) credited, Rs. 3,600

OR

(b) T.D. Ltd. issued Rs. 10,00,000, 9% debentures at a discount of 10% redeemable at a certain rate of premium. On issue of these 9% debentures, the premium on redemption of debentures account was credited by Rs. 1,00,000. The amount of 'loss on issue of debentures' was :

(A) Rs. 1,00,000 (B) Rs. 2,00,000 (C) Rs. 3,00,000 (D) Nil

Q: (a) If 600 shares of Rs. 10 each, issued at a premium of Rs. 1 per share are forfeited on which Rs. 8 per share (including premium) have been called and Rs. 6 per share (including premium) have been paid, then 'Share Forfeiture Account' will be ________ by ________. (A) credited, Rs. 3,000 (B) debited, Rs. 3,000 (C) debited, Rs. 3,600 (D) credited, Rs. 3,600 OR (b) T.D. Ltd. issued Rs. 10,00,000, 9% debentures at a discount of 10% redeemable at a certain rate of premium. On issue of these 9% debentures, the premium on redemption of debentures account was credited by Rs. 1,00,000. The amount of 'loss on issue of debentures' was : (A) Rs. 1,00,000 (B) Rs. 2,00,000 (C) Rs. 3,00,000 (D) Nil

**Correct option: (A) credited, Rs. 3,000.** On forfeiture, the Share Forfeiture Account is credited with the amount actually received towards share capital (excluding any premium already received, since securities premium once received is not cancelled on forfeiture). - Amount called (incl. premium) = Rs. 8/share; Amount paid (incl. premium) = Rs. 6/share - Premium already received = Rs. 1/share (part of the Rs. 6 paid) - Amount received towards share capital = $\text{Rs. }6 - \text{Rs. }1 = \text{Rs. }5/\text{share}$ - Share Forfeiture A/c credited = Rs. 5 × 600 shares = **Rs. 3,000**

Accounting for Share Capital

Forfeiture of Shares Issued at Premium

Options

(A)credited, Rs. 3,000

(B)debited, Rs. 3,000

(C)debited, Rs. 3,600

(D)credited, Rs. 3,600

Official Answer

Correct option: (A) credited, Rs. 3,000.

On forfeiture, the Share Forfeiture Account is credited with the amount actually received towards share capital (excluding any premium already received, since securities premium once received is not cancelled on forfeiture).

Amount called (incl. premium) = Rs. 8/share; Amount paid (incl. premium) = Rs. 6/share
Premium already received = Rs. 1/share (part of the Rs. 6 paid)
Amount received towards share capital = $\text{Rs. }6 - \text{Rs. }1 = \text{Rs. }5/\text{share}$
Share Forfeiture A/c credited = Rs. 5 × 600 shares = Rs. 3,000

share forfeiture accountforfeiture of sharessecurities premium reservecalls in arrearsshares issued at premiumloss on issue of debentures

Marking Scheme

11 mark: for correctly identifying option (A) with the working showing $\text{Rs. }5 (\text{Rs. }6\text{ paid} - \text{Rs. }1\text{ premium}) \times 600\text{ shares} = \text{Rs. }3,000$ .

Hint

Premium already received on shares is never cancelled on forfeiture — Share Forfeiture Account is credited only with the amount received towards face value.

Quick Oral Answer

Share Forfeiture Account is credited only with the amount actually received towards share capital, excluding any premium already received — here $\text{Rs. }5 \times 600 = \text{Rs. }3,000$ , so option (A) is correct.

Analysis & Explanation

Concept: When shares issued at a premium are forfeited, the Securities Premium Reserve already received is NOT reversed (Section 52 of the Companies Act, 2013 treats it as a capital receipt); only unpaid/uncalled premium is cancelled by debiting Securities Premium Reserve. The Share Forfeiture Account is credited only with the amount actually received against the face value of shares.

Journal entry on forfeiture (600 shares):

Particulars	Debit (Rs.)	Credit (Rs.)
Share Capital A/c (Rs. 7 called × 600) Dr.	4,200
To Share Forfeiture A/c (Rs. 5 received × 600)		3,000
To Calls-in-Arrears A/c (Rs. 2 unpaid × 600)		1,200

Why other options are wrong:

(B) debited, Rs. 3,000 — Share Forfeiture is always a CREDIT balance at the time of forfeiture, never debited at this stage.
(C) debited, Rs. 3,600 — wrong side and wrong amount (Rs. 3,600 = Rs. 6 × 600, the total amount paid including premium, which cannot be credited since the premium portion must be excluded).
(D) credited, Rs. 3,600 — correct side but wrong amount; it wrongly includes the Rs. 1 premium already received within the forfeited amount.

OR Part (b) — for reference: T.D. Ltd. issued Rs. 10,00,000 9% debentures at 10% discount (= Rs. 1,00,000) redeemable at a premium credited by Rs. 1,00,000 to Premium on Redemption of Debentures A/c. $\text{Loss on Issue of Debentures} = \text{Discount on Issue} (\text{Rs. }1,00,000) + \text{Premium on Redemption} (\text{Rs. }1,00,000)$ = Rs. 2,00,000, i.e., option (B).

Common Mistakes

1Crediting Share Forfeiture Account with the full amount paid ( $\text{Rs. }6 \times 600 = \text{Rs. }3,600$ ) without excluding the premium already received.
2Debiting Share Forfeiture Account instead of crediting it — forfeiture always results in a credit balance at the time of forfeiture.
3In part (b), forgetting to add both the discount on issue AND the premium on redemption when computing loss on issue of debentures.

Interesting Facts

Under Section 52 of the Companies Act, 2013, once securities premium is actually received in cash, it can never be cancelled or refunded even if the shares are later forfeited.

Loss on Issue of Debentures is written off over the life of the debentures and is shown as a non-current/current asset (to the extent not written off) under 'Other Non-Current/Current Assets' in the Balance Sheet.

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Frequently Asked Questions

Why is the premium already received not included in the Share Forfeiture Account?

Under Section 52 of the Companies Act, 2013, securities premium once received in cash is a capital receipt that cannot be cancelled or refunded, even on forfeiture of the shares. Only unpaid/uncalled premium is cancelled by debiting Securities Premium Reserve; premium already received stays untouched.

How is Loss on Issue of Debentures calculated when debentures are issued at a discount and redeemable at a premium?

Loss on Issue of Debentures = Discount on Issue of Debentures + Premium payable on Redemption of Debentures. In part (b), this is $\text{Rs. }1,00,000\text{ (discount)} + \text{Rs. }1,00,000\text{ (premium on redemption)} = \text{Rs. }2,00,000$ .