Forfeiture of shares results in the reduction of :

The correct answer is Option (4) → Paid-up Capital

On forfeiture, the shares are cancelled. Share Capital Account is debited with the called-up amount on those shares, so the paid-up capital of the company falls. The amount already received is kept in the Share Forfeiture Account.

Option (1) Reserve Capital — Incorrect. Reserve capital is uncalled capital kept for winding up; forfeiture does not touch it.

Option (2) Capital Reserve — Incorrect. Capital reserve is not reduced; it may instead increase later when forfeited shares are reissued at a gain.

Option (3) Authorised Capital — Incorrect. Authorised capital is the limit fixed in the Memorandum of Association; forfeiting shares does not change that limit.