Question

National Heavy Chemicals Ltd. issued 5,000 shares of 10 each at a premium of 2 per
share public subscription, payable as 5 on Application and 7 on Allotment (including
premium). Ramesh, who was allotted 200 shares by the company, failed to pay the
allotment amount and his shares were forfeited by the company. 100 out of these forfeited
shares were allotted to Brajesh as fully paid-up for 8 per share.
Record the transactions relating to Forfeiture and Re-issue of Shares.​

Answer 1

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=Rs5

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 equation

ForfeitureAmount=200shares×Rs5=Rs1000

ForfeitureAmountfor100share=100shares×Rs5=Rs500

Forfeitureamountonreissue=100shares×Rs2=200

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

Profitonreissue=ForfeitedAmountonforfeiture−Forfeitedamountonreissue

Substitute the values in the above equation

Profitonreissue=Rs500−Rs200=Rs300

Hence,  the profit earned on the reissue of shares is Rs 300.

Share Forfeiture a/c  Dr. Rs300

To share capital a/ Rs300.