Debenture forfeiture
M Iffi (44 Points)
10 December 2022
can debenture be forfeited like share and reissued
8 Replies
Yasaswi Gomes new
(Finance )
(4545 Points)
Replied 10 December 2022
Yes they can be. In many countries there is no forfeiture accounting i heard. I think the flow goes like this
Bank dr
Share application cr
Instead of passing allotment because shres will be allotted anyways after application money is received, allotment entry can be made redundant
Share application dr.
Share/debenture capital cr
When it is forfeited
Share/debentuee capital dr.
Forfeiture cr
There is another entry which shows amount due but that wont be necessary cause we only recognise what we receive.
When the person leaves off the money it can be shown as profit
Forfeiture a/c dr
Profit on forfeiture / capital reserves cr
Or when you reissue it to the same person for same price
Forfeiture dr 100
Bank dr 100
Share / debenture capiral cr 200
That leaves the bank account to be reconciled . That means 100 forfeited is reversed and 100 received for further calls recogniaed in share capital
sabyasachi mukherjee
(27654 Points)
Replied 11 December 2022
The only difference between share and debenture is the basic one. Debenture is a loan .Share is an application for either increasing capital or right issue. There are are other minor differences.
Yasaswi Gomes new
(Finance )
(4545 Points)
Replied 11 December 2022
Sorry got carried away cause i was answering this question after more than 2 years. Yes debenthres can be forfeited but the am8unt cannot be kept as profits not unless the court gives the permission if they fail to make payments completely. Until then it charges interest.
capital dr
Forfeiture cr
And
Bank dr
Interest on due balance cr.
Yasaswi Gomes new
(Finance )
(4545 Points)
Replied 11 December 2022
I have tried to search for provisions regarding forfetures and couldnt find any. Hence we can forfeit and reissue it to the same person. Otherwise companies can go bankrupt. Im just skeptical about it.
M Iffi
(44 Points)
Replied 11 December 2022
If no provisions exist then what is to be done when a person doesn't pay allotment or call for debentures
Yasaswi Gomes new
(Finance )
(4545 Points)
Replied 11 December 2022
The corporate givernance implemets these laws on ths contract to reduce agency costs due to conflicts. So codes are defined by corporate directors and they will know what to do. Accounting wise there is nothing wrong to forfeit and go to a court and reissue or transfer it to capital reserves. So what is there on the contract is very important. Abstract of what agency theory means https://www.accaglobal.com/pk/en/student/exam-support-resources/professional-exams-study-resources/strategic-business-leader/technical-articles/corporate-governance-inside-out.H T M L
Yasaswi Gomes new
(Finance )
(4545 Points)
Replied 12 December 2022
Well in MNC they do work on codes. Financial governance is an important part. MIS especially plays a crucial role. Otherwise why will anyone ask such a doubt if the procedures are well defined. Kaka hotels can dont need all of these thoughts but not bahemoth corporations. The failure of financial governance led to 2008 recession due to inexperienced auditors. What happened after recession is, they just changed few softwares but havent defined the modus operendi
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