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
• B. Rs 18
• C. Rs 16
• D. None of these

Answer 1

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.

$ForfeitureAmount=No.ofshares\times ForfeitureAmount$

Substitute the values in the above equation

$ForfeitureAmount=10shares\times Rs2=Rs20$

$ForfeitureAmountfor8shares=8shares\times Rs2=Rs16$

$ForfeitureAmountonreissue=8shares\times Rs0=Rs0$

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

$Profitonreissue=ForfeitedAmountonforfeiture-ForfeitedAmountonReissue$

Substitute the values in the above equation

$Profitonreissue=Rs16-Rs0=Rs16$

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

Share forfeiture a/c Dr. Rs16

To share forfeiture a/c Rs16.