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Question -

Explain the term ‘Forfeiture of Shares’ and give the accounting treatment on forfeiture.



Answer -

If a shareholder fails to pay the allotment money and/or any subsequent calls, then the company has the right to forfeit shares by giving a proper notice to the shareholder.
 As per the Table A of the Company Act, the procedure of forfeiting shares is mentioned below.
1. A notice is sent to default shareholder stating him/her to pay Calls in Arrears along with the interest accrued on the outstanding calls money within a period of 14 days of the receipt of notice, otherwise, the shares will be forfeited.
2. If the shareholder does not pay the amount, then the company has the right to forfeit his/her share by passing a resolution.
3. A notice of that resolution is send to the default shareholder and a public notice of the same is published in a daily newspaper.
4. The name of the shareholder is removed from the register of members (i.e. shareholders).
Accounting Treatment for Forfeiture of Shares:
i) Forfeiture of Shares that were issued at Par


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