Why Premium amounts are not transferred to share forfeiture account?

Started by TechShristi, March 31, 2014, 11:43:51 am

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TechShristi

Hello Friends:

Yesterday i was surfing the internet and come across a good question on Forfeiture of Shares.I think every Professional students must know about this so i am sharing the same with answer (Hope you will enjoy it)

When a Company Forfeiture the shares it pass the following entry for the same:

Share Capital A/c Dr (No. of shares forfeited × Called up value per
share)
Securities Premium A/c Dr. (if issued at a premium and premium not
received)
  To Calls-in-Arrear A/c (amount not received on forfeited shares)
  To Shares Forfeited A/c (amount received on forfeited shares)
  To Discount on Issue of Shares A/c (if issued at a discount)

Now, In above case,no entry is made if Securities Prenium is received.Why those premium amounts received are not transferred to
share forfeiture account?



Solution:

If Securities Premium is not collected then it will be debited to set off the previous entry of issusing the shares at prenium.But if securities amounts is received then it is not transfered to the forfeiture account.

This is because, the amount received on Securities Premium is not a part of share capital and accord ding to Section 78 it can be used for specific purpose only.So since it is not capital Share amount it cannot be transfer to share forfeiture account.


Confused, check the following snapshot of the Accounting ebook explaining the same.



TechShristi




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