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Question

Y Ltd, forfeited 100 shares of Rs 100 each issued at 20% premium (to be paid at the time of allotment) for non-payment of a first call of Rs 30 per share and a second & final call of Rs 20 per share. Out of these 40 shares were re-issued as fully paid-up for Rs 90 per share. The Profit on re-issue is _________.

A
Rs 7,000
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B
Rs 5,000
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C
Rs 1,600
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D
None of these
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Solution

The correct option is C Rs 1,600

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=Rs50

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=100shares×Rs50=Rs5,000

ForfeitureAmountfor40shares=40shares×Rs50=Rs2,000

ForfeitureAmountonreissue=40shares×Rs10=Rs400

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=Rs2,000Rs400=Rs1,600

Hence, the profit earned on the reissue of shares is Rs 1,600.


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