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Question

M Ltd. forfeited 10 shares of Rs 10 each (Rs 6 called up) issued at a discount of 10% to Y on which he had paid an application money of Rs 2 per share. If 8 of these shares were re-issued as Rs 8 called up for Rs 7.50 per share, the Profit on re-issue is-

A
Rs 20
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B
Rs 16
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C
Rs 12
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D
Rs 8
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Solution

The correct option is B Rs 16

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=Rs2

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=10shares×Rs2=Rs20

ForfeitureAmountfor8shares=8shares×Rs2=Rs16

ForfeitureAmountonreissue=8shares×Rs0=Rs0

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=Rs16Rs0=Rs16

Hence, the profit earned on the reissue of shares is Rs 16.


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