The balance of Share Forfeiture account is shown as an addition to the total paid-up capital of the company. Under which head and title of the Balance Sheet it will be shown, until the forfeited shares are reissued?
A. 'Share Capital' under the title "Liabilities and Equity"
B. 'Reserve and Surplus' under the title "Liabilities and Equity"
C. 'Shareholders' Funds' under the title of "Equity and Liabilities"
D. 'Share Capital' under the title 'Equity and Liabilities'
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → C & D only
Schedule III prescribes one title for the whole left-hand side of the balance sheet — Equity and Liabilities — and under it the first head is Shareholders’ Funds, whose first item is Share Capital. Money on forfeited shares is not a reserve, so until those shares are reissued the balance is added to the paid-up capital in the Share Capital note.
A. ‘Share Capital’ under the title “Liabilities and Equity” — Incorrect. There is no title called “Liabilities and Equity” in the prescribed format. The title is “Equity and Liabilities”, in that order, so this statement puts Share Capital under a title that does not exist.
B. ‘Reserve and Surplus’ under the title “Liabilities and Equity” — Incorrect. The title is wrong for the same reason, and so is the head. The forfeited amount is capital contributed by shareholders, not a profit the company has set aside, and it appears nowhere in the list of items classified as Reserves and Surplus.
C. ‘Shareholders’ Funds’ under the title of “Equity and Liabilities” — Correct. Share Capital sits inside Shareholders’ Funds, and Shareholders’ Funds sits under Equity and Liabilities.
D. ‘Share Capital’ under the title ‘Equity and Liabilities’ — Correct. Share Capital is the sub-head under Shareholders’ Funds, and that is the line the forfeited amount is added to.
NCERT Extract
