Question

M Limited forfeited 2,000 equity shares of Rs 10 each, issued at a premium of Rs 5 per share, held by Ram for nonpayment of the Final call of Rs 3 per share. Of these, 100 shares were re-issued to Vishu at a discount of Rs 4 per share. The Profit on re-issue is ___________.

• A. Rs 14,000,
• B. Rs 13,600,
• C. Rs 700,
• D. Rs 300,

Answer 1

The correct option is D Rs 300,

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

$ForfeitureAmount=Rs7$

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

$ForfeitureAmount=100shares\times Rs7=Rs700$

$Forfeitureamountonreissue=100shares\times Rs4=Rs400$

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

$Profitonreissue=ForfeitedAmountonforfeiture$

Substitute the values in the above equation

$Profitonreissue=Rs700-Rs400=Rs300$

Hence, the profit earned on the reissue of shares is Rs $300$.