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Question

The directors of N Ltd. resolved that 1,000 equity shares of Rs 10 each, Rs 7.50 called up be forfeited for non-payment of first call of Rs 250. 90% of these shares were re-issued as fully paid for Rs 6 per share. The Profit on re-issue is ________.

A
Rs 7,500,
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B
Rs 3,900,
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C
Rs 900,
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D
None of these
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Solution

The correct option is C Rs 900,

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=Rs5

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=1000shares×Rs5=Rs5000

ForfeitureAmountfor900shares=900shares×Rs5=Rs4,500

ForfeitureAmountonreissue=900shares×Rs4=Rs3,600

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=Rs4,500Rs3,600=Rs900

Hence, the profit earned on the reissue of shares is Rs 900.

Share forfeiture a/c Dr. Rs900

To share capital a/c Rs900.


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