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Question

A limited company forfeited 300 shares of Mr. X who had applied for 500 shares on account of non-payment of allotment money Rs 3 + 2 (premium) and first call Rs 2. Only Rs 3 per share was received with application. Out of these 200 shares were re-issued to Mr. Y as fully paid shares for Rs 8 per share excluding premium. The Profit on re-issue is __________.

A
Rs 1,500
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B
Rs 200
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C
Rs 600
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D
None of these
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Solution

The correct option is B Rs 200

Forfeiture amount per share is the amount to be received by the company on forfeiture of each share.

ForfeitureAmount=ApplicationAmount

Substitute the values in above equation

ForfeitureAmount=Rs3

Forfeiture amount is the money received by company on forfeiture (cancellation of share) or on the reissue of share.

ForfeitureAmount=No.ofshares×ForfeitureAmount

Substitute the values in the above equation

ForfeitureAmount=300×3=Rs900

ForfeitureAmountfor200shares=200×3=Rs600.

ForfeitureAmountforreissuedshares=200×0=Rs0

Profit on the reissue is the profit earned by the company when the forfeited shares are reissued

Profitonreissue=ForfeitedAmountonforfeitureForfeitedamountonreissue

Substitute the values in the above equation

Profitonreissue=Rs600Rs0=Rs600

Hence, the profit earned on the reissue of shares is Rs 600.


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