What is the Re-issue of Forfeited Shares?
The sale of previously issued shares to another individual or company is meant by the term "re-issue" when referring to forfeited shares. The term "re-issue" does not refer to the practice of issuing forfeited shares again on the share market; rather, it indicates that shares have been sold to another individual or business. Once shares have been issued, further shares cannot be issued on the share market; only the firm or the owner of shares may sell these shares to other owners.
Re-Issue of Forfeited Shares
The company may sell these shares according to the terms and circumstances that have been determined. For example, the re-issued shares might be offered for sale at the same price as the original issuance, at a premium, or a reduction. However, the discount amount should be up to the whole balance of the share that was forfeited, and the discount amount will be modified based on the balance of the account that was forfeited.
Capital Reserve: What You Need to Know
Defining the Meaning of Capital Reserve
Sale of fixed assets, upwards revaluation of assets that reflect current market worth, issuance of stock in surplus of par value (share premium), earnings on redemption of debentures, and re-issue of forfeited shares are all examples of operations that may be used to build a company's capital reserve. To rephrase, a corporation does not generate enough revenue to fund a capital reserve on its own.
Many businesses maintain a cash reserve to avoid costly debt in unanticipated short-term expenses. Predicted or future expenses are not factored in. The company's capital reserve is usually kept in a bank account or invested in highly liquid assets. The phrase "reserve" is not defined by widely accepted accounting rules, making the term "capital reserve" obsolete (GAAP).
Profit on Re-issue for Various Share Types
Until the firm re-issues the forfeited shares, the credit amount in the Share Forfeiture A/c is unavailable for use. If this happens, the corporation will deduct the discounted cost of re-issuing these shares from the Share Forfeiture A/c. However, if a corporation re-issues shares across several classes, only the sum related to those shares will be deposited into the Capital Reserve.
For instance, if a corporation foregoes 500 shares with an Rs. 4 par value and 200 shares with an Rs. 5 par value, the total amount of shares forfeited would be Rs. 12,000. Share Forfeiture Account Balance = (500 x 4) + (200 x 5) = Rs3000.
Now, the amount that will be transferred to Capital Reserve if the corporation issues 200 shares with 5 paid-up at 8 is: [(Rs. 5 + Rs. 8) - Rs. 10]x 200 shares = Rs. 1400
Entry On Forfeiture and Re-issue of Shares
Journal Entries at the time of Forfeiture and Reissue of Shares.
Share forfeiture and reissue entry are as follows:
Conclusion
It is very straightforward to re-issue shares once they have been cancelled or lost. The request may be submitted by the shareholder or by the legitimate representative of a shareholder who has passed away; after the corporation receives it, it is generally re-issued once it has been processed. If there is no evidence that the shares were not misplaced or stolen, then it is reasonable to assume that they were; hence, they should be allowed to be re-issued.
FAQs on Re-issue of Shares with Concept of Capital Reserve
1. Are the reserve funds available for use?
There are numerous uses for which one can set up money in reserve. Accordingly, various types of reserves, such as a legal reserve fund, will serve different purposes than capital reserves or reserve capital. In other words, you shouldn't use them every day unless necessary.
It's common practice to put away a portion of a company's funds for future use, whether asset reinvestment or liquidation. On the other hand, reserve funds are actual earnings that have been put aside for a designated purpose. As a result, they have many of the same characteristics, such as appearance and behavior, yet serve distinct functions.
2. What is the formula for capital reserve, or how to calculate capital reserve?
If all forfeited shares are reissued, the Share Forfeited Account will reflect a zero balance since the sum in this account will be transferred to the capital reserve account once the discount permitted on the reissue has been applied. However, if only some of the forfeited shares are reissued, and the rest are canceled, the number of forfeited shares that were not reissued will be recorded in the shares forfeited account. Thus capital reserve formula is:
3. What section of the balance sheet do capital reserves make up?
Capital will be shown as Equity, with a surplus and reserve category, on the balance sheet. Capital reserve, in its most basic definition, is the profit made from the sale of an investment asset. Even though some money will be left over after depleting the capital reserve, this surplus is not regarded as typical working capital. Instead, this indicates that they turn into an unanticipated excess, which may be put back into your company.
