Journal Entries for Forfeiture of Shares

Introduction:
Forfeiture of shares occurs when a shareholder fails to pay the calls made on the shares held by him/her. The company can forfeit the shares after giving a notice to the shareholder. The forfeited shares can be reissued by the company.

Journal Entries:
In the given case, Y Limited has forfeited 1000 equity shares of Rs 10 each issued at a discount of 10% for non-payment of the first call of Rs 2 per share and the final call of Rs 3 per share. The necessary journal entries for forfeiture of shares are as follows:

1. On the first call due date:
Bank Account Dr. 2,000
To Share Capital Account 2,000
(Being the first call on 1000 shares @ Rs 2 per share)

2. On the final call due date:
Bank Account Dr. 3,000
To Share Capital Account 3,000
(Being the final call on 1000 shares @ Rs 3 per share)

3. On the forfeiture of shares:
Share Capital Account Dr. 10,000
Discount on Issue of Shares Account Dr. 1,000
To Share Forfeited Account 11,000
(Being the forfeiture of 1000 shares @ Rs 10 each)

4. On the reissue of forfeited shares:
Bank Account Dr. (Amount received)
Forfeited Shares Account Dr. (Nominal value of shares forfeited)
Discount on Issue of Shares Account Dr. (Discount amount forfeited)
To Share Capital Account (Nominal value of shares)
To Securities Premium Account (Premium received on reissue)
(Being the reissue of forfeited shares @ a price higher than the nominal value)

Explanation:
The first two journal entries represent the call money received by the company from the shareholders. The third entry records the forfeiture of shares due to non-payment of calls. The share capital account is debited with the nominal value of shares forfeited, and the discount on issue of shares account is debited with the discount amount forfeited. The share forfeited account is credited with the total amount of shares forfeited.

The fourth entry records the reissue of forfeited shares by the company. The bank account is debited with the amount received on reissue, and the forfeited shares account is debited with the nominal value of shares forfeited. The discount on issue of shares account is also debited with the discount amount forfeited. The share capital account is credited with the nominal value of shares reissued, and the securities premium account is credited with the premium received on reissue.

Conclusion:
The forfeiture of shares is a legal process that can be used by the company to recover the unpaid calls from the shareholders. The company must follow the proper procedures and give notice to the shareholders before forfeiting the shares. The forfeited shares can be reissued by the company at a higher price than the nominal value, which results in a gain for the company. The journal entries for forfeiture of shares must be recorded properly to maintain accurate accounting records.