The profit on the reissue of forfeited shares is transferred to

When shares are forfeited and then reissued, any profit arising from this transaction is of capital nature because it originates from share-related transactions (capital transactions), not from regular business operations.

---

Accounting Treatment:

When forfeited shares are reissued at a price higher than the discount allowed, a profit arises. This profit amount remains in the Share Forfeiture Account.

The balance left in Share Forfeiture Account after reissue represents:

Profit on Reissue = Amount received on forfeiture - Discount allowed on reissue

This balance is transferred to Capital Reserve through the journal entry:

Journal Entry:

Share Forfeiture A/c ... Dr

To Capital Reserve A/c

---

Why Capital Reserve?

Capital Reserve is used for profits of capital nature that:

• Cannot be distributed as dividends to shareholders
• Arise from capital transactions (not revenue operations)
• Must be kept separate from trading profits

Since profit on reissue of forfeited shares arises from share transactions (capital in nature), it is transferred to Capital Reserve, not General Reserve (which is for revenue profits) or any other reserve.

Correct Answer: Option 3 - Capital Reserve