Question

A Ltd. Forfeited 100 shares of 100 each issued at a premium of 50% to be paid at time
allotment on which first call of 30 per equity share was not received, final call of 20 are yet
to be made. These shares were reissued at 70 per share at 80 paid up Calculate Gain on
reissue:​

Answer 1

Answer:

Forfeiture amount per share is the amount to be received by the company on forfeiture of each share.

ForfeitureAmount=ApplicationAmount

Substitute the values in above equation

ForfeitureAmount=Rs50

Forfeiture amount is the money received by company on forfeiture (cancellation of share) or on the reissue of share.

ForfeitureAmount=No.ofshares×ForfeitureAmount

Substitute the values in the above equationForfeitureAmount=100shares×Rs50=Rs5000

Forfeitureamountonreissue=100shares×Rs10=1000

Profit on the reissue is the profit earned by the company when the forfeited shares are reissued

Profitonreissue=ForfeitedAmountonforfeiture

Substitute the values in the above equation

Profitonreissue=Rs5000−Rs1000=Rs4000

Hence, the profit earned on the reissue of shares is Rs 4000.

Answer 2

Journal entry in the books of A Company

Explanation:-

1)Share Capital A/c. Dr. 8,000

To Share Forfeiture A/c 5,000

To share first call A/c 3,000

To share first call A/c 3,0002) Bank A/c Dr. 7,000

Share Forfeiture A/c Dr. 1,000

To Share capital A/c 8,000

To Share capital A/c 8,0003) Share Forfeiture A/c Dr.4,000

To Capital Reserve A/c 4,000

Premium will not be dealt with in this case because premium amount was to be credited in Securities Premium Reserve on the time of allotment and we did receive it on allotment without failure.

If we hadn't received the premium amount then securities premium reserve would have to be debited in the share forfeiture entry.