Profit on reissue of shares is transferred to

When shares are forfeited and subsequently reissued, any profit arising from this transaction is of capital nature (not revenue nature) because it originates from a capital transaction involving share capital.

Accounting Treatment:

The profit on reissue is calculated as:

Profit on Reissue = Amount forfeited on reissued shares - Discount allowed on reissue

This profit is transferred to Capital Reserve.

Why Capital Reserve?

Capital Reserve is used because the profit arises from a capital transaction, not from normal business operations. Such profits:

• Cannot be distributed as dividends
• Are meant to strengthen the financial position of the company
• Can only be utilized for specific purposes like writing off capital losses

Illustration:

If 100 shares of ₹10 each were forfeited (₹8 paid up) and reissued at ₹6 per share:

• Amount forfeited per share = ₹8
• Amount forfeited on 100 shares = ₹800
• Discount on reissue = ₹4 per share = ₹400
• Profit on reissue = ₹800 - ₹400 = ₹400

This ₹400 is transferred to Capital Reserve.

The correct answer is Option 4: Capital Reserve.