A company forfeited 200 shares of ₹ 100 each, ₹ 70 called up, on which the holder paid ₹ 50 per share. These shares were reissued at ₹ 80 fully paid up per share. The share forfeited account will be debited in the reissue entry with:

Question

Accepted Answer

The correct option is 2:
The amount debited to the Share Forfeited Account in the reissue entry represents the loss or discount allowed on the reissue of the forfeited shares. When shares are reissued at a price lower than their new paid-up value, the company must utilise the existing credit balance in the Share Forfeited Account to cover this discount, which is the amount debited. This is done to ensure the company recovers the full paid-up amount from the combination of the reissue price and the forfeited amount. In this case, the 200 shares were reissued at ₹ 80 and were declared 'fully paid up', meaning the nominal or paid-up value for the new shareholder is ₹ 100 per share. The loss per share is calculated as the new Paid-up Value minus the Reissue Price: ₹ 100 - ₹ 80 = ₹ 20 per share. Therefore, the total amount debited to the Share Forfeited Account is 200 shares multiplied by the loss per share: 200 shares x ₹ 20/share = ₹ 4,000. This is a valid reissue as the loss of ₹ 20 per share is less than the forfeited amount of ₹ 50 per share.

The incorrect option is 1:
₹ 6,000 is an incorrect value and does not correspond to the actual discount calculated for the reissue. The calculation for the debit to the Share Forfeited Account must strictly follow the rule: loss per share is the difference between the new paid-up value and the reissue price. It is crucial to remember that the initial called-up amount (₹ 70) is irrelevant for calculating the discount on reissue when the shares are reissued as fully paid-up (₹ 100). The amount ₹ 6,000 has no direct or meaningful conceptual link to the reissue transaction in question.

The incorrect option is 3:
₹ 10,000 represents the total amount that was originally paid by the defaulting shareholder and subsequently forfeited by the company (200 shares x ₹ 50 paid per share). This is the pre-existing credit balance in the Share Forfeited Account. While this figure is very important because it represents the *maximum permissible discount* (loss) the company can offer on reissue, it is not the actual discount *used* in this specific transaction. The actual debit must reflect only the discount given.

The incorrect option is 4:
₹ 16,000 is the total cash proceeds received by the company upon the reissue of the shares (200 shares x ₹ 80 reissue price). This amount is debited to the Bank or Cash Account in the journal entry, as it represents the increase in the company's liquid assets. The Share Forfeited Account, however, is only debited for the loss or discount on reissue, which is the amount required to make the reissue price and discount equal the fully paid-up value.