Solution:

Journal Entry for Forfeiture of Shares:

When shares are forfeited, it means that the shareholder has failed to pay the remaining amount due on the shares. In this case, the company has issued 1,000 shares of Rs. 10 each at a premium of Rs. 2 per share. The application money of Rs. 4 has been received, but the remaining Rs. 8 (including premium) has not been received.

The journal entry for the forfeiture of shares will involve the following accounts:

1. Share Capital Account
2. Share Premium Account
3. Share Forfeiture Account
4. Share Allotment Account
5. Share Application Account

Step 1: Transfer the Application Money to Share Allotment Account:

The application money received needs to be transferred to the share allotment account. Since the application money is Rs. 4 per share, the total application money received is Rs. 4,000 (Rs. 4 x 1,000 shares).

Journal Entry:
Share Application Account Dr. 4,000
To Share Allotment Account 4,000

Step 2: Forfeiture of Shares:

The shares that are forfeited will be transferred to the share forfeiture account. In this case, 1,000 shares will be forfeited.

The total value of forfeited shares can be calculated as follows:
Nominal value of shares forfeited = Number of shares forfeited x Nominal value per share = 1,000 shares x Rs. 10 per share = Rs. 10,000

The premium received on these forfeited shares also needs to be transferred to the share premium account. The premium per share is Rs. 2, so the total premium received is Rs. 2,000 (Rs. 2 x 1,000 shares).

The journal entry for the forfeiture of shares is as follows:

Journal Entry:
Share Allotment Account Dr. 4,000
Share Premium Account Dr. 2,000
To Share Forfeiture Account 10,000

Step 3: Treatment of Forfeiture:

The shares that are forfeited will be treated as cancelled. The share capital account will be reduced by the nominal value of forfeited shares, and the share premium account will be reduced by the premium received on forfeited shares.

The journal entry to adjust the share capital and share premium accounts is as follows:

Journal Entry:
Share Forfeiture Account Dr. 12,000
To Share Capital Account 10,000
To Share Premium Account 2,000

Step 4: Treatment of Share Forfeiture Account:

The balance in the share forfeiture account represents the amount due from the shareholder who failed to pay for the shares. This amount will be shown as a liability in the balance sheet until it is realized.

Journal Entry:
Share Forfeiture Account Dr. 12,000
To Shareholder's Account 12,000

Summary:

The journal entries for the forfeiture of shares are as follows:

- Transfer the application money to the share allotment account:
Share Application Account Dr. 4,000
To Share Allotment Account 4,000

- Forfeiture of shares: