If the balance in a forfeited shares account is refundable to the owners of those shares, then the account is classified as a component of:
A) revenue.
B) liabilities.
C) equity.
D) expense.

Question

Quizplus · Accepted Answer

Forfeiture of shares refers to the cancellation of shares on account of non-payment or partial payment of calls or the failure to comply with other terms and conditions of issue. The amount received on forfeiting shares is credited to Forfeited Shares Account, which is a part of Share Forfeiture Account. If the forfeited shares are reissued, the amount to the extent of the reissued shares can be transferred to the Share Capital Account. However, if the shares are not reissued, the amount received on forfeiting shares can be refunded to the shareholders. Hence, the balance in the forfeited shares account is classified as a liability as it represents the amount payable to the shareholders.

If the Balance in a Forfeited Shares Account Is Refundable