AccountancyCBSE Class 12 · Accounting for Share Capital

Forfeiture of Shares Class 12: Journal Entries with Premium and Pro-Rata Cases

Updated 15 October 2026 · Fact-checked

Forfeiture of shares is the cancellation of shares when a shareholder fails to pay allotment or call money. Share Capital is debited with the amount called up, Securities Premium with any premium not received, Share Forfeiture is credited with the amount already received, and the unpaid calls are credited. Share Forfeiture is shown under Share Capital.

Debit Share Capital with the full called-up amount; credit what was received to Share Forfeiture and what was unpaid to calls; debit premium only if unpaid.

Illustration drawn for QuestionBuddy.

Understand Forfeiture of Shares

Meaning. If a shareholder fails to pay an amount due on allotment or on a call, the company may, after due notice and as per its Articles of Association, forfeit (cancel) his shares. He loses the shares and the money already paid, which the company keeps in a Share Forfeiture Account (Forfeited Shares Account).

The entry (shares issued at par).

Share Capital A/c Dr (number of shares × amount called up per share)
To Share Forfeiture A/c (amount received on those shares)
To Share Allotment / Share Call(s) A/c, or Calls in Arrears A/c (amounts unpaid)

Shares issued at a premium.

If the premium was not received (for example, due on allotment, which was not paid): also debit Securities Premium with the unpaid premium.
If the premium has been received, do not debit Securities Premium: premium once received is never cancelled.

After pro-rata allotment. Excess application money already adjusted towards allotment counts as received. So:

Amount received = application money paid on the shares applied for (including the excess adjusted).
Allotment unpaid = allotment due − excess adjusted.

Calls in Arrears. If the company opened a Calls in Arrears Account for unpaid calls, credit that account instead of the call account. (Interest on calls in arrears is outside the 2026-27 syllabus.)

Presentation (Schedule III). In the notes to Share Capital: subscribed and fully paid (or not fully paid) capital is shown excluding forfeited shares, and the Share Forfeiture balance is added under Share Capital as 'Add: Share Forfeiture (Forfeited Shares) Account'. After reissue (see the next topic), any surplus on the forfeited shares that were reissued moves to Capital Reserve.

Forfeiture of Shares: key facts

Share Capital debit: Number of forfeited shares × amount called up per share; Not the nominal value, unless fully called.
Share Forfeiture credit: Amount received on those shares (towards capital); Received premium is not part of it.
Unpaid premium: Debit Securities Premium only if the premium was not received
Pro-rata unpaid allotment: Allotment due − excess application money adjusted
Balance check: Share Capital Dr + Securities Premium Dr = Forfeiture Cr + unpaid amounts Cr

How to answer Forfeiture of Shares questions

Build a small per-share table (called, paid, unpaid, premium status) before writing the entry.

1Note the nominal value, premium and the stage at which the premium is payable.
2List per-share amounts: called up so far, paid by the defaulter, unpaid.
3For pro-rata cases, compute the excess application adjusted and the net allotment unpaid.
4Debit Share Capital with called-up amount; debit Securities Premium only if it is unpaid.
5Credit Share Forfeiture with capital received and each call account with the unpaid amount.
6Check that debits equal credits; show Share Forfeiture under Share Capital in the notes.

Forfeiture of Shares in real life

The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

What a defaulting shareholder loses

Suppose Kiran applies for 200 shares of ₹10 each issued at a premium of ₹5 by Sunrise Textiles Ltd (a fictional company). She pays ₹3 on application and ₹7 on allotment (including the ₹5 premium), but then cannot pay the final call of ₹5. After notice, the company forfeits her shares.

Pass the forfeiture entry and state how much money Kiran loses.

Try it first, then show the solutionSolution

Called up capital: 200 × 10 = ₹2,000 (Share Capital Dr).
Capital received: 200 × (3 + 2) = ₹1,000 (Share Forfeiture Cr); premium was received, so no premium debit.
Unpaid call: 200 × 5 = ₹1,000 (Share Final Call Cr).

Answer: Share Capital A/c Dr 2,000 To Share Forfeiture A/c 1,000; To Share Final Call A/c 1,000. Kiran loses everything she paid: ₹2,000 (₹1,000 towards capital and ₹1,000 premium), and no longer owns the shares.

Memory hook: Forfeiture keeps the money and cancels the shares.

Tricks to remember Forfeiture of Shares

Short memory aids. Say each one aloud once, then use it on a question the same day.

Called Dr, Received Cr, Unpaid Cr
C-R-U: debit Called-up capital; credit Received to Forfeiture; credit Unpaid to the call accounts.
Use it when: Every forfeiture entry.
Premium in pocket stays
If the premium has been received, leave Securities Premium alone.
Use it when: Premium cases.
Excess is paid
In pro-rata cases, excess application money is money already received.
Use it when: Pro-rata forfeiture.

Forfeiture of Shares: solved examples

Ordered from board level to HOTS. Try each one before you open the solution.

Example 1: Basic forfeiture · 1 mark · MCQBoard level

A company forfeited 100 shares of ₹10 each, ₹8 called up, on which the shareholder had paid ₹5 per share (application and allotment) but failed to pay the first call of ₹3. The amount credited to Share Forfeiture Account is:
(a) ₹800
(b) ₹300
(c) ₹500
(d) ₹1,000

Try it first, then show the solutionSolution

Share Forfeiture = amount received = 100 × 5 = ₹500.
Entry: Share Capital Dr 800; To Share Forfeiture 500; To Share First Call 300.

Answer: (c) ₹500

Example 2: Premium not received · 3 marks · Short answerBoard level

A company issued shares of ₹10 each at a premium of ₹2, payable: application ₹3, allotment ₹5 (including premium), first and final call ₹4. Raj, holding 500 shares, paid application money only. His shares were forfeited after the call. Pass the forfeiture entry. (3 marks)

Try it first, then show the solutionSolution

Called up: ₹10 per share = 5,000; premium due but unpaid ₹2 per share = 1,000.
Received towards capital: ₹3 per share = 1,500.
Unpaid: allotment 500 × 5 = 2,500; call 500 × 4 = 2,000.

Answer: Share Capital A/c Dr 5,000; Securities Premium A/c Dr 1,000; To Share Forfeiture A/c 1,500; To Share Allotment A/c 2,500; To Share First and Final Call A/c 2,000.

Example 3: Premium received before default · 3 marks · Short answerHarder board level

Shares of ₹10 each were issued at a premium of ₹3: application ₹2, allotment ₹5 (including premium), first call ₹3, final call ₹3. Meera, holding 1,000 shares, paid application and allotment but not the two calls. Her shares were forfeited. Pass the entry. (3 marks)

Try it first, then show the solutionSolution

Called up: ₹10 = 10,000.
Capital received: application 2 + allotment 2 (5 − 3 premium) = ₹4 per share = 4,000.
Premium was received, so Securities Premium is not debited; unpaid calls 3,000 and 3,000.

Answer: Share Capital A/c Dr 10,000; To Share Forfeiture A/c 4,000; To Share First Call A/c 3,000; To Share Final Call A/c 3,000.

Example 4: Forfeiture after pro-rata allotment · 4 marks · Short answerHarder board level

Shares of ₹10 are payable: application ₹3, allotment ₹4, call ₹3. Applications for 1,500 shares were received for 1,000 shares, and allotment was made pro-rata, the excess application money being adjusted towards allotment. Rahul, who applied for 300 shares, failed to pay the allotment and the call; his shares were forfeited. Pass the forfeiture entry. (4 marks)

Try it first, then show the solutionSolution

Shares allotted to Rahul = 300 × 1,000/1,500 = 200.
Application paid = 300 × 3 = 900; needed for 200 shares 600; excess 300 adjusted to allotment.
Allotment due 200 × 4 = 800; unpaid 800 − 300 = 500; call unpaid 200 × 3 = 600.
Received = 900; Share Capital Dr 2,000.

Answer: Share Capital A/c Dr 2,000; To Share Forfeiture A/c 900; To Share Allotment A/c 500; To Share Call A/c 600.

Example 5: Share capital note after forfeiture · 4 marks · Short answerHOTS / competency

Asterix Ltd (authorised capital: 1,00,000 equity shares of ₹10 each) issued 50,000 equity shares of ₹10 each, fully called. All money was received except the final call of ₹2 per share on 1,000 shares, which were then forfeited. Prepare the note on Share Capital. (4 marks)

Try it first, then show the solutionSolution

Authorised: 1,00,000 × 10 = ₹10,00,000; issued: 50,000 × 10 = ₹5,00,000.
Subscribed and fully paid: 49,000 × 10 = ₹4,90,000.
Add: Share Forfeiture = 1,000 × 8 = ₹8,000.
Total share capital = ₹4,98,000.

Answer: Note: Authorised 1,00,000 shares of ₹10 = 10,00,000; Issued 50,000 shares = 5,00,000; Subscribed and fully paid 49,000 shares of ₹10 = 4,90,000; Add: Share Forfeiture 8,000; Total ₹4,98,000.

Example 6: Premium already received · 1 mark · Assertion-reasonHOTS / competency

Assertion (A): On forfeiture of shares issued at a premium, Securities Premium is not debited if the premium has already been received.
Reason (R): Premium once received is not cancelled, even if the shares are later forfeited.
(a) Both A and R are true, and R is the correct explanation of A.
(b) Both A and R are true, but R is not the correct explanation of A.
(c) A is true, but R is false.
(d) A is false, but R is true.

Try it first, then show the solutionSolution

Only unpaid premium is reversed; received premium stays in the reserve. R explains A.

Answer: (a) Both A and R are true, and R is the correct explanation of A.

Where students lose marks in Forfeiture of Shares

The slips examiners see most often, and what to write instead.

Mistake: Debiting Share Capital with the nominal value when not fully called
Habit of using ₹10.
Wrong working
Share Capital Dr 1,000 (100 × 10) when ₹8 is called.
Right working
Share Capital Dr 800 (100 × 8).
Do this: Debit only the called-up amount.
Usually costs: 1 mark.
Mistake: Debiting Securities Premium when it was received
Thinking all premium is reversed.
Wrong working
Securities Premium Dr 3,000 (premium paid with allotment).
Right working
No premium debit; it was received.
Do this: Check whether the defaulter paid the instalment carrying the premium.
Usually costs: 1-2 marks.
Mistake: Ignoring the excess application money in pro-rata cases
Treating application as only ₹3 × allotted shares.
Wrong working
Forfeiture Cr 600; Allotment Cr 800.
Right working
Forfeiture Cr 900; Allotment Cr 500.
Do this: Work out shares applied and excess adjusted first.
Usually costs: 2 marks.
Mistake: Showing Share Forfeiture under Reserves and Surplus
It looks like a gain.
Wrong working
Reserves and Surplus: Share Forfeiture 8,000.
Right working
Share Capital note: Add Share Forfeiture 8,000.
Do this: Until reissue, it is part of share capital.
Usually costs: 1 mark.

Exam tips

Write a per-share table: called, paid, unpaid, premium paid or not. It prevents most errors.
Use 'Calls in Arrears' only if the question says the company maintains that account.
Give narrations: 'being 500 shares forfeited for non-payment of allotment and call money'.
Forfeiture is asked in 1-mark MCQs and inside 4- and 6-mark share capital questions every year.

Practice questions on Forfeiture of Shares

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

Q1 · 1 mark · MCQBoard level
On forfeiture of shares, Share Capital Account is debited with:
(a) the nominal value of the shares
(b) the amount called up on the shares
(c) the amount received on the shares
(d) the amount unpaid on the shares
Hint
C-R-U.
Answer
(b) the amount called up on the shares
Q2 · 1 mark · MCQBoard level
The balance of Share Forfeiture Account (before reissue) is shown in the balance sheet under:
(a) Reserves and Surplus
(b) Share Capital
(c) Other Current Liabilities
(d) Long-term Provisions
Hint
Added to subscribed capital.
Answer
(b) Share Capital
Q3 · 3 marks · Short answerBoard level
200 shares of ₹10 each, fully called, were forfeited for non-payment of the final call of ₹4 per share. Pass the forfeiture entry. (3 marks)
Hint
Paid ₹6 per share.
Answer
Share Capital A/c Dr 2,000; To Share Forfeiture A/c 1,200; To Share Final Call A/c 800.
Q4 · 3 marks · Short answerHarder board level
300 shares of ₹10 each were issued at a premium of ₹5; ₹2 was payable on application and ₹8 (including premium) on allotment. The holder paid application money only, and the shares were forfeited immediately after allotment. Pass the entry. (3 marks)
Hint
Called up ₹5 capital per share; premium unpaid.
Answer
Share Capital A/c Dr 1,500 (300 × 5); Securities Premium A/c Dr 1,500; To Share Forfeiture A/c 600; To Share Allotment A/c 2,400.
Q5 · 4 marks · Short answerHarder board level
Shares of ₹10: application ₹4, allotment ₹4, call ₹2. Neha applied for 400 shares and was allotted 300 (pro-rata); her excess application money was adjusted towards allotment. She failed to pay allotment and the call, and her shares were forfeited. Pass the entry. (4 marks)
Hint
Excess = 100 × 4.
Answer
Received = 400 × 4 = 1,600. Allotment due 1,200 − excess 400 = 800 unpaid; call 600 unpaid. Share Capital A/c Dr 3,000; To Share Forfeiture A/c 1,600; To Share Allotment A/c 800; To Share Call A/c 600.
Q6 · 1 mark · Very short answerHarder board level
A company keeps a Calls in Arrears Account. It forfeited 100 shares of ₹10 each, fully called, on which ₹3 per share was in arrears. Pass the forfeiture entry. (1 mark)
Hint
Credit Calls in Arrears.
Answer
Share Capital A/c Dr 1,000; To Share Forfeiture A/c 700; To Calls in Arrears A/c 300.
Q7 · 3 marks · Short answerHarder board level
A company called ₹8 per share on 10,000 shares of ₹10 each. 400 shares, on which ₹6 per share had been paid, were forfeited. Show how share capital appears in the note. (3 marks)
Hint
Exclude forfeited shares; add forfeiture.
Answer
Subscribed but not fully paid: 9,600 shares of ₹10 each, ₹8 called up = ₹76,800; Add: Share Forfeiture (400 × 6) = ₹2,400; Total ₹79,200.
Q8 · 1 mark · Assertion-reasonHarder board level
Assertion (A): When shares issued at a premium are forfeited after the premium has been received, Securities Premium is debited.
Reason (R): Premium once received is not cancelled on forfeiture.
(a) Both A and R are true, and R is the correct explanation of A.
(b) Both A and R are true, but R is not the correct explanation of A.
(c) A is true, but R is false.
(d) A is false, but R is true.
Hint
Received premium stays.
Answer
(d) A is false, but R is true.
Q9 · 3 marks · Short answerHOTS / competency
A forfeiture entry shows Share Capital debited ₹8,000 and Share Forfeiture credited ₹4,800. The defaulter had paid ₹6 per share. Find the number of shares forfeited and the amount called up per share. (3 marks)
Hint
Forfeiture ÷ amount paid per share.
Answer
Number = 4,800 ÷ 6 = 800 shares; called up per share = 8,000 ÷ 800 = ₹10 (fully called).
Q10 · 3 marks · Short answerHOTS / competency
The Share Forfeiture Account shows ₹1,800 on 300 forfeited shares of ₹10 each, ₹8 called up. How much had the defaulter paid per share, and how much per share was unpaid at forfeiture? (3 marks)
Hint
Forfeiture = amount received.
Answer
Paid = 1,800 ÷ 300 = ₹6 per share; unpaid = 8 − 6 = ₹2 per share (₹600 in total).

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1.What is credited to Share Forfeiture Account on forfeiture?Show answer
The amount received towards capital on the forfeited shares.
2.When is Securities Premium debited on forfeiture?Show answer
Only when the premium due has not been received.
3.Under which head is Share Forfeiture shown?Show answer
Share Capital (in the notes), added to subscribed capital.
4.100 shares, ₹10 called, ₹7 paid: amounts in the forfeiture entry?Show answer
Share Capital Dr 1,000; Forfeiture Cr 700; Calls Cr 300.
5.In a pro-rata case, how is excess application money treated on forfeiture?Show answer
As money received; it reduces the allotment unpaid.

Forfeiture of Shares: frequently asked questions

What is forfeiture of shares in Class 12?

Cancellation of shares by the company when a shareholder fails to pay allotment or call money; the money he paid is kept by the company in Share Forfeiture Account.

How is forfeiture of shares issued at a premium recorded?

As usual, plus a debit to Securities Premium only if the premium was not received; received premium is never reversed.

Is interest on calls in arrears in the 2026-27 syllabus?

No. Calls in arrears and calls in advance are asked without interest.

Where does Share Forfeiture go after the shares are reissued?

The surplus on the reissued shares is transferred to Capital Reserve; the balance on shares not reissued stays under Share Capital.