Question

. New India Ltd. forfeited 100 shares of Rs. 10 each, issued at a discount of 10%. The company had called up only Rs. 8 per share. Final call of Rs. 2 each has not been made on these shares. These shares were allotted to Ram, who did not pay the first call of Rs. 3. 60 shares were reissued at Rs. 7 per share, as Rs. 8 paid up. Give Journal entries in the books of the company, showing the working clearly

Answer 1

Answer:

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

ForfeitureAmount=ApplicationAmount+AllotmentAmount

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=100shares×Rs5=Rs500

ForfeitureAmountfor70shares=70shares×Rs5=Rs350

ForfeitureAmountonreissue=7shares×Rs0=Rs0

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=Rs350−Rs0=Rs350

Hence, the profit earned on the reissue of shares is Rs 350.