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CA Foundation · Accounting · Company Accounts

Nair Ltd. forfeited 500 equity shares of ₹10 each, fully called up, on which ₹6 per share had been paid. Of these, 300 shares were re-issued at ₹8 per share as fully paid. What amount of Share Forfeiture Account relating to the re-issued shares is transferred to Capital Reserve?

The transfer to Capital Reserve is ₹1,200. Forfeiture balance on the 300 re-issued shares is ₹1,800, from which the re-issue discount of ₹600 (₹2 per share) is deducted. The remaining gain is a capital profit and is transferred to Capital Reserve.

  1. A₹1,800
  2. B₹600Correct
  3. C₹1,200
  4. D₹2,400

Explanation

Forfeiture credit per share is ₹6. On re-issue at ₹8 as fully paid, the discount allowed is ₹2 per share, which is adjusted against forfeiture. Forfeiture on 300 shares = ₹1,800; discount = 300 × ₹2 = ₹600. Capital reserve = ₹1,800 − ₹600 = ₹1,200. Hence the answer is ₹1,200, not ₹600 (that is the discount).

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