The Balance in the Share Forfeited Account relating to reissue of forfeited shares will be treated as:

Capital Profit

The correct answer is Option (1) → Capital Profit.

The Balance in the Share Forfeited Account relating to reissue of forfeited shares will be treated as Capital Profit.

The directors can either cancel or re-issue the forfeited shares. In most cases, they reissue such shares which may be at par, at premium or at a discount. Forfeited shares may be reissued as fully paid at a par, premium, discount. In this context, it may be noted that the amount of discount allowed cannot exceed the amount that had been received on forfeited shares at the time of initial issue, and that the discount allowed on reissue of forfeited shares should be debited to the ‘Forfeited Share Account’. The balance, if any, left in the Share-Forfeited Account relating to reissued Shares, should be treated as capital profit and transferred to Capital Reserve Account.