Q.What happens to the balance remaining in the Share Forfeited Account after the forfeited shares have been reissued? Illustrate using Question 5.

Once the reissue is complete, whatever is left in the Share Forfeited Account for those shares has served its purpose and needs a final resting place in the books.

The Share Forfeited Account, for any batch of forfeited shares, is credited with the amount already received from the original shareholder before forfeiture. When those shares are reissued, the account is debited with any discount allowed to the new allottee (up to the limit of what was originally forfeited on those shares). Whatever balance is left over after this debit has genuinely been retained by the company with no further obligation attached to it — it is a capital profit, since it did not arise from the company's normal trading operations but from a shareholder default and reissue.

Accordingly, this leftover balance is transferred to Capital Reserve, a reserve of capital profits that:

• Is shown under 'Reserves and Surplus' in the company's Balance Sheet.
• Is not available for distribution as dividend to shareholders, since dividend can be paid only out of genuine trading/revenue profits.
• Can be used for limited capital purposes permitted by law (e.g. writing off capital losses, issuing bonus shares in some cases). …

Students sometimes leave the balance sitting in the Share Forfeited Account indefinitely instead of transferring it once reissue is complete, or they mistakenly transfer it to General Reserve/Statement of Profit and Loss — rem …