Question

X Ltd. forfeited 10 shares of Rs 10 each issued at a discount of 10% to Y on which a second & financial call of Rs 4 was not yet called and a first call of Rs 4 was not received. 8 of these shares were reissued as Rs 8 called up for Rs 7.50 per share. On re-issue, the Forfeited Share Account will be ___________.

• A. Debited with Rs 16
• B. Credited with Rs 12
• C. Debited with Rs 4
• D. Credited with Nil amount

Answer 1

The correct option is D Credited with Nil amount

When shares are reissued the discount allowed on share is transferred to the share forfeiture account.

Forfeiture amount per share is the amount to be received by the company on forfeiture of each share.

$ForfeitureAmount=ApplicationAmount+Discount$

Substitute the values in above equation

$ForfeitureAmount=Rs3$

Forfeiture amount is the money received by company on forfeiture (cancellation of share) or on the reissue of share.

$ForfeitureAmount=No.ofshares\times ForfeitureAmount$

Substitute the values in the above equation

$ForfeitureAmount=10shares\times Rs3=Rs30$

$ForfeitureAmountfor8share=8shares\times Rs3=Rs24$

$Forfeitureamountonreissue=8shares\times Rs2.50=Rs20$

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

$Profitonreissue=Rs24-Rs20=Rs4$

Hence, the profit earned on the reissue of shares is Rs $4$ and debited to forfeiture account.

Share forfeiture a/c Dr Rs4

To capital reserve a/c Rs4.