N 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 per share, the Profit on re-issue is ____________.

Rs 20

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Rs 16

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Rs 12

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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.
$F o r f e i t u r e A m o u n t = A p p l i c a t i o n A m o u n t$
Substitute the values in above equation
$F o r f e i t u r e A m o u n t = R s 2$
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
$F o r f e i t u r e A m o u n t = 10 s h a r e s \times R s 2 = R s 20$
$F o r f e i t u r e A m o u n t f o r 8 s h a r e s = 8 s h a r e s \times R s 2 = R s 16$
$F o r f e i t u r e A m o u n t o n r e i s s u e = 8 s h a r e s \times R s 0 = R s 0$
Profit on the reissue is the profit earned by the company when the forfeited shares are reissued
$P r o f i t o n r e i s s u e = F o r f e i t e d A m o u n t o n f o r f e i t u r e - F o r f e i t e d a m o u n t o n r e i s s u e .$
Substitute the values in the above equation
$P r o f i t o n r e i s s u e = R s 16 - R s 0 = R s 16$
Hence, the profit earned on the reissue of shares is Rs $16$ .
Share forfeiture a/c Dr Rs16
To capital reserve a/c Rs16

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