The correct answer is option 4-
Bank A/c Dr.
Share forfeiture A/c Dr.
To Share capital A/c
(Shares reissued at discount)
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.
For example, when a company forfeits 200 shares of Rs. 10 each on which Rs. 600 had been received, it can allow a maximum discount of Rs. 600 on their reissue. Assuming that the company reissues these shares for Rs. 1,800 as fully paid, the necessary journal entry will be:
Bank A/c Dr. 1,800
Share Forfeiture A/c Dr. 200
To Share Capital A/c 2,000
(Reissue of 200 forfeited shares at Rs. 9 per share as fully paid)
This shall leave a balance of Rs. 400 in share forfeited account which should be transferred to Capital Reserve Account by recording the following journal entry:
Share Forfeiture A/c Dr. 400
To Capital Reserve 400
(Profit on reissue of forfeited shares transferred) |
