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Question

MIG Ltd, forfeited 10 shares of Rs 10 each (Rs 6 called up) issued at a discount of 10% to Mr. Y on which he had paid an application money of Rs 2 per share. Out of these, 8 shares were re-issued to Z as Rs 8 called up for Rs 9 per share. The Profit on re-issue is _________.

A
Rs 20
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B
Rs 18
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C
Rs 16
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D
None of these
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Solution

The correct option is C Rs 16

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=Rs2

Forfeiture amount is the money received by the 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

The extra 1 rupee paid by the shareholder on the reissue is not considered because it is a part of the security premium, not share forfeiture amount.

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=Rs16Rs0=Rs16

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

Share forfeiture a/c Dr. Rs16

To share forfeiture a/c Rs16.


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