Skip to content

CA Intermediate · Corporate and Other Laws · Share Capital and Debentures

Narmada Pharma Ltd forfeited 400 equity shares of Rs 10 each, issued at a premium of Rs 5 per share, for non-payment of the final call of Rs 3 per share. The premium had been received in full. The board then reissued all of these shares to Mr. Dev as fully paid at Rs 8 per share. Which statement is correct under the Companies Act, 2013 and standard accounting treatment?

The reissue is valid. Forfeited shares can be reissued at a discount so long as the discount does not exceed the amount forfeited on them. Here the discount is Rs 2 per share against Rs 7 forfeited, and the discount is charged to the share forfeiture account, not to securities premium.

  1. AThe reissue is invalid because forfeited shares cannot be reissued at less than the face value
  2. BThe reissue is valid, since the discount of Rs 2 per share does not exceed the amount forfeited on those shares, and the discount is adjusted against the share forfeiture balanceCorrect
  3. CThe reissue is valid only if the Tribunal sanctions the discount
  4. DThe reissue is valid and the Rs 2 discount must be debited to the securities premium account

Explanation

Forfeited shares may be reissued at a discount, provided the discount does not exceed the amount forfeited on those shares. Amount forfeited per share is Rs 7 (paid Rs 10 minus Rs 3 unpaid), and the premium already received is not forfeited from the premium account. A discount of Rs 2 is below Rs 7, so the reissue is valid and the discount is debited to the share forfeiture account. Debiting securities premium is wrong.

Did you get it right without looking?

One question tells you little. A timed set on Share Capital and Debentures shows your real accuracy, how long you take and where you lose marks.

Practise Share Capital and DebenturesFree diagnostic mock

More Share Capital and Debentures questions