Surya limited invited applications for 15,000 shares for ₹10 each at a premium of 20% per share. The amount was payable as under

On application ₹4        On allotment ₹6
On first call ₹1             On final call-Balance

Applications were received for 36,000 shares and pro-rata allotment was made to all the applicants. Directors have not made the final call. Mr. Ritesh the holder of 300 shares did not pay anything after application money. Directors forfeited these shares and re-issued them at ₹6 per share.

On the basis of following case, answer the Question.

The profit on reissue of shares would be transferred to:

Capital Reserve

The correct answer is Option (1) - Capital Reserve.

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.