Forfeiture of Shares for UPSC EPFO APFC: 7 Easy Steps, Journal Entries and 10 MCQs
Forfeiture of shares is one of the most repeated company accounts topics in the UPSC EPFO APFC paper. It looks scary because of the journal entries. It is not. Every question follows one simple logic: cancel what was called, remove what was not received, and keep what was received. This page shows the full chain, from issue to reissue, in one mind map, a few tables and three worked examples. For more APFC notes, open the Study Directory.
Issue stages
- Application → Allotment
- First call → Final call
Calls
- Arrears: up to 10% interest
- Advance: up to 12% interest
Forfeiture entry
- Dr Share Capital (called up)
- Cr Unpaid calls + Forfeiture
Reissue
- Discount ≤ amount forfeited
- Dr Bank + Forfeiture
Capital Reserve
- Forfeited − discount
- Only for reissued shares
Law
- Sec 52 premium, Sec 53 discount
- Table F: 14-day notice
1What forfeiture of shares means
Forfeiture of shares means the company cancels shares because the holder did not pay a call or allotment money. The holder loses the shares. The holder also loses the money already paid.
- The power must exist in the Articles of Association (Table F of Schedule I applies if the Articles are silent).
- The Board of Directors passes the resolution, after a notice that gives at least 14 days from service (Table F, Regulations 28 to 30).
- This is not a reduction of share capital under Section 66, so it does not need Tribunal approval.
2How shares are issued in stages
Money is collected in parts. Each stage has two entries: one when money is due, one when it is received.
| Stage | When due | When received |
|---|---|---|
| Application | — | Dr Bank, Cr Share Application |
| Transfer on allotment | Dr Share Application, Cr Share Capital | — |
| Allotment | Dr Share Allotment, Cr Share Capital (+ Securities Premium) | Dr Bank, Cr Share Allotment |
| Each call | Dr Share Call, Cr Share Capital | Dr Bank, Cr Share Call |
When more people apply than shares on offer (over-subscription), the Board can choose:
Reject
- Refund full application money
Full allotment
- Some applicants get all they asked for
Pro-rata
- Applicants get a proportion
- Excess money is adjusted to allotment
3Calls in arrears and calls in advance
Calls in arrears
- Money called but not paid
- Interest up to 10% p.a. (Table F, Reg. 16)
- Deducted from called-up capital in the share-capital note
Calls in advance
- Money paid before it is called
- Interest up to 12% p.a. (Table F, Reg. 18)
- A liability, not part of share capital
Under Schedule III, calls unpaid must be disclosed in the share-capital note (with the amount unpaid by directors and officers shown separately). Forfeited shares are added at the amount originally paid up, until they are reissued.
4Journal entry for forfeiture of shares
Use this three-line logic for every question of this type.
| Account | Dr / Cr | Amount |
|---|---|---|
| Share Capital | Dr | Called-up amount |
| Securities Premium | Dr | Only if premium was not received |
| Unpaid allotment / calls | Cr | Amount not received |
| Share Forfeiture | Cr | Amount received |
Example 1 (issued at par): Ravi holds 200 shares of ₹10. He paid ₹3 on application and ₹4 on allotment. He did not pay the final call of ₹3. The shares are fully called up.
| Entry | Dr (₹) | Cr (₹) |
|---|---|---|
| Share Capital (200 × 10) | 2,000 | |
| To Share Final Call (200 × 3) | 600 | |
| To Share Forfeiture (200 × 7) | 1,400 |
Example 2 (issued at a premium): 100 shares of ₹10 are issued at ₹12. Application is ₹3. Allotment money ₹5 includes ₹2 premium, so ₹6 is called towards capital. The holder paid only the ₹3 application money. The shares are forfeited after allotment.
| Entry | Dr (₹) | Cr (₹) |
|---|---|---|
| Share Capital (100 × 6 called) | 600 | |
| Securities Premium (100 × 2, not received) | 200 | |
| To Share Allotment (100 × 5) | 500 | |
| To Share Forfeiture (100 × 3) | 300 |
Example 3 (pro-rata allotment): A company offers 200 shares of ₹10, payable ₹3 on application and ₹3 on allotment. Applications are received for 300 shares, so allotment is in the ratio 3:2. X applies for 300 shares, is allotted 200, and pays application money of ₹900, but does not pay the rest of the allotment. Excess application money of ₹300 (100 × 3) is adjusted towards allotment. Allotment due on 200 shares is ₹600, so unpaid allotment is ₹300. Called-up capital is ₹6 per share.
| Entry | Dr (₹) | Cr (₹) |
|---|---|---|
| Share Capital (200 × 6) | 1,200 | |
| To Share Allotment (unpaid) | 300 | |
| To Share Forfeiture (all money received from X) | 900 |
5Reissue of forfeited shares
After forfeiture of shares, the company can reissue them at par, at a premium or at a discount. The discount cannot be more than the amount forfeited on those shares.
Continue Example 1. All 200 shares are reissued at ₹8 per share, fully paid.
| Step | Working | ₹ |
|---|---|---|
| Bank received | 200 × 8 | 1,600 |
| Discount (Dr Forfeiture) | 200 × 2 | 400 |
| Share Capital credited | 200 × 10 | 2,000 |
| Transfer to Capital Reserve | 1,400 − 400 | 1,000 |
6Premium and discount rules
| Section | Rule |
|---|---|
| Sec 52 | Premium received is transferred to Securities Premium A/c |
| Sec 52(2) | Uses: fully paid bonus shares, preliminary expenses, issue expenses or commission or discount, premium on redemption, and buy-back under Section 68 |
| Sec 53(1) | Issue of shares at a discount is prohibited, except sweat equity under Section 54 |
| Sec 53(2A) | A later exception: discount allowed when debt is converted into shares under a statutory resolution plan or RBI-regulated restructuring |
| Sec 54 | Sweat equity shares, if the statutory conditions are met |
| Table F | Forfeiture after a notice giving at least 14 days from service |
The statutory text is in the Companies Act, 2013 on India Code and on the Ministry of Corporate Affairs website. For the accounting method, see ICAI study material. Capital Reserve is a capital profit; that idea links to our notes on accounting concepts and conventions and on capital versus revenue.
7Forfeiture of shares: traps and one-glance summary
These are the traps that cost marks on forfeiture of shares.
- Debit Share Capital with the called-up amount, not the face value, if the shares are only partly called.
- Premium already received is never cancelled on forfeiture.
- Discount on reissue cannot exceed the forfeited amount on those shares.
- Capital Reserve, not General Reserve or Profit and Loss, and only for shares actually reissued.
- Calls in advance are a liability, not share capital. In a pro-rata case, do not forget excess application money when you credit Share Forfeiture.
| Idea | One line |
|---|---|
| Forfeiture | Cancel shares for non-payment after notice |
| Share Capital Dr | Called-up amount |
| Forfeiture Cr | Amount received (including pro-rata excess) |
| Reissue discount | Up to amount forfeited on those shares |
| Surplus | To Capital Reserve, on reissued shares only |
| Interest | Arrears 10%, advance 12% (Table F) |
10 practice MCQs with score analysis
Answer all ten, then press Submit. You will see correct, wrong and blank counts, your percentage and an explanation for each question.
FAQ on forfeiture of shares
What is forfeiture of shares?
Forfeiture of shares is the cancellation of shares by the Board when a shareholder fails to pay allotment or call money after due notice. The money already paid is kept by the company.
Where is the Share Forfeiture balance shown in the balance sheet?
Under Schedule III, the amount originally paid up on forfeited shares is shown in the Share Capital note, added to subscribed capital, until the shares are reissued. Calls unpaid are disclosed separately and are deducted from called-up capital.
Can forfeited shares be reissued at a discount?
Yes, but the discount cannot exceed the amount forfeited on those shares. Any surplus on the reissued shares is transferred to Capital Reserve.
Is securities premium reversed on forfeiture of shares?
Only if the premium was not received. If it was already received, it stays in the Securities Premium account.