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
• B. Rs 5,000
• C. Rs 1,600
• D. None of these

Answer 1

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.

$ForfeitureAmount=No.ofshares\times ForfeitureAmount$

Substitute the values in the above equation

$ForfeitureAmount=100shares\times Rs50=Rs5,000$

$ForfeitureAmountfor40shares=40shares\times Rs50=Rs2,000$

$ForfeitureAmountonreissue=40shares\times Rs10=Rs400$

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

$Profitonreissue=Rs2,000-Rs400=Rs1,600$

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