The Profit on reissue of forfeited shares is transferred to-

When shares are forfeited due to non-payment of calls, the amount already received from the defaulting shareholder is credited to Share Forfeiture Account.

When these forfeited shares are reissued, they may be reissued at par, premium, or at a discount (not exceeding the amount forfeited).

Understanding the Profit on Reissue:

The profit on reissue = Amount forfeited - Discount given on reissue (if any)

For example, if ₹30 was forfeited per share and the share is reissued at a discount of ₹10, the profit is ₹20 per share.

Nature of this Profit:

This profit arises from a capital transaction (dealing with the company's own shares), not from regular business operations. Therefore, it is a capital profit.

Treatment of Capital Profit:

Capital profits must be transferred to Capital Reserve, which can only be utilized for specific purposes like:

• Writing off capital losses
• Issuing bonus shares
• Writing off preliminary expenses

It cannot be distributed as dividend to shareholders.

Option 3: Capital Reserve is the correct answer.