Give answer on the basis of Information given below.
Poonam Ltd. invited application for 5,00,000 shares of ₹10 each @10% premium payable as follows:
Application - ₹3
Allotment - ₹5 [including premium]
1st and final call - balance
Applications were received for 6,60,000 shares. Application for 60,000 shares were rejected and pro-rata allotment was made as follows:
(a) 4,00,000 shares - full
(b) 2,00,000 shares - 50%
Mr. Aman, who was allotted 500 shares under category (a), paid full amount along with allotment money. Whereas another shareholder, Mr. Rahul who was allotted 1000 shares under category (b) failed to pay the allotment money. His shares were subsequently forfeited. These shares were reissued at ₹14 per share for ₹7 paid up. Final call has not yet been made.
Amount transferred to capital Reserve will be:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) - ₹6,000.
Entry on forfeiture of shares-
Share Capital A/c (1,000 x 7) ₹7,000
Securities premium reserve A/c (1,000 x 1) ₹1,000
To Share forfeiture A/c ₹6,000
To Share Allotment A/c ₹2,000
Entry on reissue-
Bank A/c Dr. (1,000 x 7) ₹14,000
To Securities premium A/c ₹7,000
To Share Capital A/c (1,000 x 14) ₹7,000
Entry on transfer to capital reserve-
Share forfeiture A/c Dr. ₹6,000
To Capital reserve A/c ₹6,000
As no forfeiture balance is used in reissue of shares so full amount of share forfeiture is transferred to capital reserve.