Arrange the following events (in relation to the issue of shares) in a logical order.
(A) Transfer to capital reserve.
(B) Forfeiture of share.
(C) Calls in arrears.
(D) Re issue of share.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → (C), (B), (D), (A)
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(C) Calls in arrears: This is the initial event that triggers the whole process. It means a shareholder fails to pay the amount due on the shares (the 'call').
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(B) Forfeiture of share: Due to the call being in arrears, the company will legally cancel or take back the shares.
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(D) Re issue of share: The company then sells the forfeited shares to a new shareholder.
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(A) Transfer to capital reserve: The profit made on the reissue (i.e., the excess of the reissue price over the uncollected amount on forfeiture) is a capital gain and must be transferred to the Capital Reserve account. This is the final accounting step.