Accountancy Part AAccounting for Shares

MNO Ltd. forfeited 1,000 shares of Rs. 10 each on which shareholders…

MNO Ltd. forfeited 1,000 shares of Rs. 10 each on which shareholders had paid only application money of Rs. 3 per share. Out of these, 400 equity shares were reissued as fully paid for Rs. 9 per share. The gain on reissue of shares transferred to Capital reserve is :

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → Rs. 800

Only 400 of the 1,000 forfeited shares were reissued. So only the forfeited amount on those 400 shares, less the discount allowed on their reissue, goes to Capital Reserve. The amount on the other 600 shares stays in the Share Forfeiture Account.

Amount forfeited on 400 shares = 400 × Rs. 3 = Rs. 1,200

Discount on reissue = 400 × (Rs. 10 − Rs. 9) = Rs. 400

Transferred to Capital Reserve = Rs. 1,200 − Rs. 400 = Rs. 800

NCERT (2026-27 edition):
Reissue of Forfeited Shares – “… Another important point to be noted in this context is that the capital profit arises only in respect of the forefited share reissued, and not on all forefeited shares. Hence, when a part of the forfeited shares are reissued, the whole balance of share forfeiture account cannot be transferred to the capital reserve. In such a situation, it is only the proportionate amount of balance that relates to the forefeited shares reissued which should be transferred to capital reserve, ensuring that the remaining balance in share forefeiture account is proportionate to the amount forefeited on shares not yet reissued.”