Discount allowed on re-issue of forfeited shares, will be:-

Debited to the 'Share Forfeiture Account'

The correct answer is Option (4) → Debited to the 'Share Forfeiture Account'.

Discount allowed on re-issue of forfeited shares, will be debited to the 'Share Forfeiture Account'.

The company can forfeit their shares, i.e. cancel their allotment and treat the amount already received thereon as forfeited to the company within the framework of the provisions in its articles. These provisions are usually based on Table F which authorise the directors to forefeit the shares for non-payment of calls made. The directors can either cancel or re-issue the forefeited 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 necessary journal entry will be:
Bank A/c Dr.
Share Forfeiture A/c Dr.
        To Share Capital A/c