Question

H Ltd. forfeited 50 shares of Rs 100 each issued at 10% premium (to be paid at the time of allotment) on which first call of Rs 30 per share was not received, the second & final call of Rs 20 per share was not yet called. If 20 of these shares were re-issued as Rs 80 paid-up for Rs 70 per share, the Profit on re-issue is _________.

• A. Rs 2,500,
• B. Rs 2,300,
• C. Rs 1,500,
• D. Rs 800,

Answer 1

The correct option is D Rs 800,

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

$ForfeitureAmount=ApplicationAmount+AllotmentAmount$

Substitute the values in above equation

$ForfeitureAmount=Rs20+Rs30=Rs50$

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

$ForfeitureAmount=No.ofshares\times ForfeitureAmount$

Substitute the values in the above equation

$ForfeitureAmount=50\times 50=Rs2500$

$ForfeitureAmountfor20shares=200\times 50=Rs1000$

$ForfeitureAmountforreissuedshares=20\times 10=Rs200$

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

$Profitonreissue=ForfeitedAmountonforfeiture-Forfeitedamountonreissue$

Substitute the values in the above equation

$Profitonreissue=Rs1000-Rs200=Rs800$

Hence, the profit earned on the reissue of shares is Rs $800$.

Share Forfeiture a/c Dr Rs800

To capital reserve a/c Rs800.