The Profit on reissue of forfeited shares is transferred to :
The Profit on reissue of forfeited shares is transferred to :
Solution
When shares are forfeited due to non-payment of calls, the company may later reissue these shares. The balance left in the Forfeited Shares Account after reissue represents the profit on such reissue.
This profit is capital in nature because:
- It arises from a capital transaction (forfeiture and reissue of shares)
- It is not earned through normal business operations
- It cannot be distributed as dividend
Capital Reserve is meant for capital profits that arise from non-trading activities like profit on reissue of forfeited shares, profit prior to incorporation, profit on redemption of debentures, etc.
Illustration:
If a company forfeited 100 shares of ₹10 each, ₹7 called up, on which ₹4 was received, the Forfeited Shares Account will be credited with ₹4 per share = ₹400.
On reissue at ₹8 per share, the discount of ₹2 per share (₹200) is adjusted against Forfeited Shares Account.
Balance in Forfeited Shares Account = ₹400 - ₹200 = ₹200 → This profit is transferred to Capital Reserve.
The other options are incorrect because:
- General Reserve is for revenue profits
- Capital Redemption Reserve is created during buyback/redemption of shares
- Reserve Capital is uncalled capital reserved for winding up only
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