Cash to be brought in by Equity Shareholders: ` As in the absence of any provisions to the contrary, provisions of Table A apply, it is necessary to note the following provisions of Table A relating to forfeiture and reissue of shares:-. (f) Besides additional subscription as above, the equity shareholders agree to convert the existing equity shares into new 10 rupees shares of total value Rs.5,00,000. Equity Share Capital (`4) A/c Dr. (Being consolidation of 25,000 10% equity shares of `4 each into, To Equity Share Capital (New `10) each (See note), By 10% Cumulative Preference Share Capital (`10) A/c, To Freehold Property 1,30,000, Less : Debenture holders 84000, 8,000 10% Cumulative Preference Shares of `10 each, 10,500 Equity Shares of `10 each (of the above 10,500 equity shares, 500 equity shares were issued for consideration other than cash), Trade Payables 11,000, Creditors for Expenses 30,000, Leasehold Property 1,00,000, Scheme dated. This content is copyright protected. Forfeiture of Shares which were originally issued at Premium Bank A/c Dr. Capital Reduction A/c Dr. (Being various assets written off as per Reconstruction scheme). 11.5 Questions and interpretive responses specific to ESOPs. A company cannot buy its own shares for the purpose of investment. Par value may be any amount1 cent, 10 cents, 16 cents, $ 1, $5, or $100. In such cases, the application money is refunded. 5. In this case the share holders volunteer to return some of the shares back to the company along with duly signed transfer deed. The amount of shares surrendered not re-issued, and the claim foregone by debenture-holders and creditors are transferred to capital re-organisation account, which will be utilised to write off losses, fictitious account etc. Assuming that the scheme is fully approved by all parties interested and by the court, draft necessary Journal Entries and Balance Sheet of the Company after the scheme has been carried into effect. (iii) Cash Account Investments are to reflect their market value. FG Corp should not record an entry to record the stock split. Image Guidelines 4. All moneys due were received except the first and final call on 100 shares which were forfeited. Accounting Treatment for Reissue of Forfeited Shares | Accounting, Accounting Provisions for Forfeiture of Shares | Company | Accounting, Issue of Shares at a Premium (With Illustrations), Issue of Shares: Problems and Solutions | India | Accounting. One shareholder holding 800 shares did not pay the first call. Share Capital A/c Dr. To Share Surrender A/c. Figure 16.5 Issue Ten Thousand Shares of $100 Par Value Preferred Stock for $101 per Share. If the loss on reissue is less than the gain on forfeiture of a share, there is a net capital gain to the company which is transferred from Forfeited Shares Account to Capital Reserve; as such, Forfeited Shares Account is debited and Capital Reserve is credited. Equity Share Capital (`10) A/c Dr. (Being reduction of 25,000 10% equity shares of `10 each into shares of. Creditors A/c Dr. (Creditors claim discharged to the extent of 95% as per reconstruction scheme, the balance of the claim sacrificed, (Writing off debit balance of profit and loss account, patents & copy rights and writing down the value of debtors, investments and fixed assets as per reconstruction scheme). If we reuse the same example as above, the journal entries would be as follows: The key difference between the constructive retirement method and the cost method is that the constructive retirement method does not involve the treasury stock account. To generate surplus for writing off accumulated losses & writing down over stated assets. 2019 - 2023 PwC. Surrender is lawful only in two cases viz. Journalise all the above mentioned transactions including cash transactions. (Book value), To Reconstruction A/c. The scheme as sanctioned by the court was implemented. Creditors (95% of `69,000) 65,550 PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Example FG 4-2 illustrates the effect of a stock split with a change in par value and Example FG 4-3 illustrates the effect of a stock split with no change in par value. Employers should credit the contra-equity account unearned ESOP shares as the shares are committed to be released, based on the original cost of the shares to the ESOP. Illustration : A Mills Ltd., decided to have internal reconstruction. Report a Violation 11. However, a common restriction is that dividends may not be paid if doing so would render the reporting entity insolvent. The salient points of the scheme are the following: (1) Each share shall be subdivided into ten fully paid equity shares of Rs 10 each. A dividend is a payment, either in cash, other assets (in kind), or stock, from a reporting entity to its shareholders. The shares come with a $1 par value. A notice has to be served on the defaulter requiring him to pay the unpaid amount together with interest accrued by a certain date. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. 6500 wef 01.09.2014, General Reserve Nil, (2) Share Application Money pending allotment, To 10% Cumulative Preference Share Capital (`8) A/c. Accounting for the distribution of nonmonetary assets to owners of an entity in a spinoff or other form of reorganization or liquidation or in a plan that is in substance the rescission of a prior business combination shall be based on the recorded amount (after reduction, if appropriate, for an indicated impairment of value) (see paragraph 360-10-40-4) of the nonmonetary assets distributed A pro rata distribution to owners of an entity of shares of a subsidiary or other investee entity that has been or is being consolidated or that has been or is being accounted for under the equity method is to be considered to be equivalent to a spinoff. Journal Entries on Forfeiture (or Surrender) and Reissue of Shares: When Shares have been Issued at Par: ADVERTISEMENTS: They can be reissued even at a price lower than the paid up value of the reissued shares at the time of reissue. Other nonreciprocal transfers of nonmonetary assets to owners shall be accounted for at fair value if the fair value of the nonmonetary asset distributed is objectively measurable and would be clearly realizable to the distributing entity in an outright sale at or near the time of the distribution. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. FG Corps shareholders equity section before the split is shown below. 4.4 Dividends. Stock issuances . Stock dividends almost always create fractional shares. Reconstruction is an exercise of restating assets & liabilities by company / entity whose financial position as reflected by its balance sheet is not healthy but future is promising. (b) 50% of the interest due on the debentures is waived. A dividend is a payment, either in cash, other assets (in kind), or stock, from a reporting entity to its shareholders. Upon declaration of the stock dividend, FG Corp should record the following journal entry. Of course if the reissue price exceeds the paid up value of reissued shares, Securities Premium Account will have to be credited with such an excess. The authorized capital to be restored to `1,00,000 in 10% cumulative preference shares of `10 each and Rs.2,50,000 in equity shares of `10 each. If forfeited shares are reissued at a premium, the amount of such a premium will be credited to Securities Premium Account. Issued and Paid-up : 2,00,000 Equity Shares of `10 each, `7 paid, Fixed Assets (`11,40,000 `34,000 written off under Reconstruction Scheme), 7,500 Equity Shares of `100 each fully paid up. (ii) The narration to journal entry should specify the approval of High Court. Taking into consideration that shares called upto 10 but 5 paid up..Now as if the rest amout has not been received thus following entry will be made:Equity share capital A/c(5)..DrTo,Equity share caiptal(3)To,Reconstruction, And after that:Equity share final call A/c..Dr 2To Equity share capital A/c 2 Bank A/c.Dr 2 To, Equity share final call 2, haha replying the answer after four years, INTERNAL RECONSTRUCTION AND SURRENDER OF SHARES. Directors Loan A/c Dr. (Being Directors Loan discharged by issue of Share Capital and the balance transferred to Capital Reduction A/c). The followings are the process / journal entries for making internal reconstruction , Assets A/c Dr. (Incremental Value). One (new) equity share of `10 each is to be issued for every `40 of gross preference dividend in arrears. Zed Ltd. issued 5,00,000 equity shares of Rs 10 each at a discount of 10% payable as to Rs 2.50 per share along with application, Rs 2.50 per share on allotment and the balance on the first and the final call to be made six months after allotment. Later, these shares were reissued as fully paid up to Suresh @ Rs 12 per share. Content Guidelines 2. 10% Cumulative Preference Share Capital (`8) A/c Dr. To 10% Cumulative Preference Share Capital(New `10) A/c, (Being consolidation of 10,000, 10% preference shares of `8 each into 8,000 10% Cumulative Preference Shares of `10 each). (a) Name a further day (not being earlier than the expiry of fourteen days from the date of the service of the notice) on or before which the payment required by the notice is to be made; and. His basis in those . Add : Depreciation (non-cash item) 83,000 Uploader Agreement. Journal entry for forfeiture of shares is: If, we maintain Calls-in-Arrears Account we will credit Calls-in-Arrears Account instead of "Shares Allotment Amount" and "Shares Call Account". A scheme for reduction of capital was sanctioned by the court as follows: The shares have a $1 par value per share. Investments A/c Dr. Capital Reduction (Balancing Figure) Dr. (Being the change in value of assets as per the resolution of the Board dated..). Increase in creditors : Fully participating dividends are shared, after the prescribed minimums, without limitation; partially participating dividends are shared only to a specified maximum amount per share, Dividend on preferred stock usually at a specified rate stated in dollars per share or as a percentage of par value, payable at stated intervals, usually quarterly, Date at which shareholders registered in the stock records will share in the dividend payment. (5) The claim of sundry creditors shall be reduced by 80% and the balance shall be satisfied by allotting them equity shares of Rs 10 each, fully paid from the shares surrendered. AccountingNotes.net. Alternative approach : Profit & Loss upto 30.9.2013 80,000 This differs from issuance costs incurred for sales of stock, which are typically recorded as a reduction of the sales proceeds. [C.S. It is the commitment to release shares based on service in the current accounting period, not the employer's cash contribution or commitment to make a future contribution, which represents the economic transfer of compensation to participants in exchange for service. Welcome to Viewpoint, the new platform that replaces Inform. If the company credits Securities Premium Account only when the premium has been received, then the question of debiting Securities Premium Account on forfeiture will not arise.