Direction (Q46 to Q50):

Eicher Ltd. issued 50,000 shares of ₹10 each at a premium of *5 per share payable as follows:

On application 3 per share

On allotment ₹5 (including 3 Premium)

On First Call ₹5 (including ₹2 Premium)

On Final Call  Balance amount

Applications were received for 72,000 shares. Directors allotted 50,000 shares to the applicants applying for 65,000 shares, the remaining applications being refused. Money overpaid on application was utilised towards sum due on allotment. All the money was duly received with the exception of first call from Rahul, who applied for 2,600 shares. Due to non-payment of 1st call his share were forfeited immediately. Later on, these shares were re-issued at minimum issue price.

On the basis of following case study, answer the question.

Question: Record journal entry for forfeiture of Rahul's shares.

The correct option is:

Share Capital A/c Dr 16,000
Securities Premium Reserve A/c Dr 4,000
To Share 1^st call A/c10,000
To Share forfeiture A/c10,000

Step-by-Step Explanation and Derivation:

1. Calculation of Shares Allotted to Rahul:
Rahul applied for 2,600 shares. The company allotted 50,000 shares to the applicants of 65,000 shares on a pro-rata basis.
The number of shares allotted to Rahul is calculated as:

$\text{Shares Allotted to Rahul}=2600\times \frac{50000}{65000}=2000\text{shares}$

2. Calculation of Called-up Capital on Forfeiture:
Rahul's shares were forfeited immediately after the first call. This means the final call had not yet been made at the time of forfeiture.
The called-up value per share (excluding securities premium) is:
- On Application: ₹3
- On Allotment (Capital portion): ₹5 - ₹3 (Premium) = ₹2
- On First Call (Capital portion): ₹5 - ₹2 (Premium) = ₹3
Total Called-up Capital per share = ₹3 + ₹2 + ₹3 = ₹8 per share.
For 2,000 shares, the total called-up share capital to be debited is:

$\text{Share Capital}=2000\text{shares}\times ₹8=₹16000$

3. Calculation of Unpaid Securities Premium to be Reversed:
The premium on allotment (₹3 per share) was fully received by the company. However, the premium on the first call (₹2 per share) remains unpaid because Rahul failed to pay the first call.
Only the unpaid premium is reversed by debiting the Securities Premium Reserve Account:

$\text{Securities Premium to be reversed}=2000\text{shares}\times ₹2=₹4000$

4. Calculation of Unpaid First Call Amount:
Rahul failed to pay the first call of ₹5 per share (including ₹2 premium).
The total unpaid first call amount is:

$\text{Unpaid 1st Call Amount}=2000\text{shares}\times ₹5=₹10000$

5. Calculation of Amount to be Forfeited (Share Forfeiture Account):
The amount credited to the Share Forfeiture Account represents the capital portion already received from the shareholder.
- Application money paid by Rahul = 2,600 shares × ₹3 = ₹7,800.
- Allotment money due on 2,000 shares = 2,000 × ₹5 = ₹10,000.
- Excess application money adjusted against allotment = (2,600 - 2,000) × ₹3 = ₹1,800.
- Balance allotment cash paid by Rahul = ₹10,000 - ₹1,800 = ₹8,200.
- Total payment made by Rahul = ₹7,800 + ₹8,200 = ₹16,000.
Subtracting the premium received on allotment (which cannot be forfeited):

$\text{Premium received on allotment}=2000\text{shares}\times ₹3=₹6000$

Therefore, the amount credited to the Share Forfeiture Account is:

$\text{Forfeited Amount}=₹16000-₹6000=₹10000$

Alternatively, this represents the capital portion received so far: (Application ₹3 + Allotment capital ₹2) × 2,000 shares = ₹5 × 2,000 = ₹10,000.