Z Ltd. forfeited 150 shares of Rs.10 each, issued at a premium of Rs. 2 per share, for non-payment of the final call of Rs. 3. Out of these, 100 shares were re-issued @ Rs. 11 per share. How much would be transferred to the capital reserve?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Rs. 700
When forfeited shares are reissued, the forfeited amount on those shares, less any discount allowed on reissue, is a capital profit and is transferred to Capital Reserve. The premium of Rs. 2 had been received with allotment, so it is not part of the forfeited amount.
Amount forfeited per share = Rs. 10 − Rs. 3 (final call unpaid) = Rs. 7
Forfeited amount on the 100 reissued shares = 100 × Rs. 7 = Rs. 700
Reissue price Rs. 11 is above the face value of Rs. 10, so no discount is charged to forfeiture; the extra Rs. 1 a share goes to Securities Premium
Capital Reserve = Rs. 700
The forfeited amount on the other 50 shares (Rs. 350) stays in Share Forfeiture Account until they are reissued.
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