KMHD Ltd. forfeited 200 shares of Rs 100 each issued at a discount of 5% on which Rs 50 per share has been called and Rs 6,000 has been paid. The company then re-issued the above mentioned shares to Mr. Singh upon payment of Rs 18,000 credited as fully paid. The Profit on re-issue is _________.

Rs 6,000

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Rs 5,000

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Rs 4,000

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None of these

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Solution

The correct option is C Rs 4,000
Forfeiture amount per share is the amount to be received by the company on forfeiture of each share.

$F o r f e i t u r e A m o u n t = A p p l i c a t i o n A m o u n t$

Substitute the values in above equation

$F o r f e i t u r e A m o u n t = R s 30$

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

$F o r f e i t u r e A m o u n t = N o . o f s h a r e s \times F o r f e i t u r e A m o u n t$

Substitute the values in the above equation $F o r f e i t u r e A m o u n t = 200 s h a r e s \times R s 30 = R s 6000$

$F o r f e i t u r e a m o u n t o n r e i s s u e = 200 s h a r e s \times R s 10 = 1000$

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

$P r o f i t o n r e i s s u e = F o r f e i t e d A m o u n t o n f o r f e i t u r e$

Substitute the values in the above equation

$P r o f i t o n r e i s s u e = R s 6000 - R s 1000 = R s 5000$

Hence, the profit earned on the reissue of shares is Rs $5000$ .

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