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Q.Java Ltd. forfeited 600 equity shares of ₹ 100 each ₹ 80 called up for the non-payment of first call of ₹ 20 per share. These shares were reissued at ₹ 90 per share fully paid up. The amount transferred to 'Capital Reserve' will be : (A) ₹ 36,000 (B) ₹ 30,000 (C) ₹ 48,000 (D) ₹ 54,000

CBSECBSE Class XII Board 2025MCQ· 1mImportance★★★★★
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Java Ltd. forfeited 600 shares (₹80 paid, ₹20 first call unpaid) and reissued them at ₹90 fully paid. Capital Reserve = ₹30,000 (Option B).

Concept: Forfeiture and Reissue of Shares

When a shareholder defaults on a call payment, the company may forfeit those shares. The amount already received from the defaulting shareholder is not refunded but is credited to a Forfeited Shares Account. This account represents the company's gain from forfeiture.

Upon reissue of forfeited shares, the company receives fresh consideration. The accounting treatment follows these principles:

  1. At Forfeiture: Debit Share Capital (called-up amount), Credit Forfeited Shares Account (amount already received), and Debit Calls-in-Arrears (unpaid call).

  2. At Reissue: Debit Bank (reissue price), Credit Share Capital (face value if reissued at par or the called-up amount if reissued as fully paid), and adjust the Forfeited Shares Account.

  3. Capital Reserve: The balance in Forfeited Shares Account after reissue—representing the net gain to the company—is transferred to Capital Reserve. This gain arises because the company has received more in total (original receipts + reissue price) than it would have if the shares had been paid up normally.

The formula is:

Capital Reserve=Amount forfeited−Discount on reissue (if any)\text{Capital Reserve} = \text{Amount forfeited} - \text{Discount on reissue (if any)}

Where:

  • Amount forfeited = Amount already paid by the original shareholder
  • Discount on reissue = Face value (or called-up value if reissued as fully paid) − Reissue price

Solution

Given Data:

  • Number of shares forfeited: 600
  • Face value per share: ₹100
  • Called-up value per share: ₹80
  • First call unpaid: ₹20 per share
  • Amount paid before forfeiture: ₹80 − ₹20 = ₹60 per share
  • Reissue price: ₹90 per share (fully paid up, meaning ₹100 face value)

Working Notes

WN 1: Amount Forfeited (credited to Forfeited Shares Account)

Amount already received from the defaulting shareholder per share = ₹60

Total amount forfeited for 600 shares:

600×₹60=₹36,000600 \times ₹60 = ₹36,000

WN 2: Reissue Treatment

The shares are reissued at ₹90 per share as fully paid up (face value ₹100). This means:

  • Bank receives: ₹90 per share
  • Share Capital is credited with: ₹100 per share (fully paid)
  • The difference (₹100 − ₹90 = ₹10 per share) is a discount on reissue, which must be debited to Forfeited Shares Account.

Total discount on reissue for 600 shares:

600×₹10=₹6,000600 \times ₹10 = ₹6,000

WN 3: Capital Reserve

Capital Reserve = Amount forfeited − Discount on reissue

=₹36,000−₹6,000=₹30,000= ₹36,000 - ₹6,000 = ₹30,000

Journal Entries

DateParticularsL.F.Debit (₹)Credit (₹)
Equity Share Capital A/c Dr.48,000
To Forfeited Shares A/c36,000
To Equity Share First Call A/c12,000
(Being 600 shares of ₹100 each, ₹80 called up, forfeited for non-payment of first call of ₹20 per share)
Bank A/c Dr.54,000
Forfeited Shares A/c Dr.6,000
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