Examkin

Question

Difficulty: HardForfeiture and Re-issue of Shares

Zenith Ventures Plc forfeited 3,0003,000 ordinary shares of ₦1.00₦1.00 each for non-payment of the final call of ₦0.35₦0.35 per share. The company subsequently reissued 2,0002,000 of these forfeited shares to Mrs. Okafor at ₦0.80₦0.80 per share as fully paid up. What amount should be transferred to the Capital Reserve account?

  1. ₦900Answer
  2. B
    ₦1,300
  3. C
    ₦1,350
  4. D
    ₦400

Answer

₦900
When forfeited shares are reissued, the profit realized on the reissued shares is transferred from the Forfeited Shares Account to the Capital Reserve Account. The paid-up amount per share was ₦0.65₦0.65 (₦1.00−₦0.35₦1.00 - ₦0.35). Upon reissue at ₦0.80₦0.80, a discount of ₦0.20₦0.20 (₦1.00−₦0.80₦1.00 - ₦0.80) was allowed. The net profit per share is ₦0.45₦0.45 (₦0.65−₦0.20₦0.65 - ₦0.20). For the 2,0002,000 reissued shares, the net profit transferred to Capital Reserve is 2,000×₦0.45=₦9002,000 \times ₦0.45 = ₦900.

Step-by-Step Solution

1
Calculate the paid-up amount per share prior to forfeiture
Nominal value (₦1.00₦1.00) minus unpaid call (₦0.35₦0.35) = ₦0.65₦0.65 per share
The amount forfeited per share equals the money already paid by the defaulting shareholder.
2
Determine the discount per share granted on reissue
Nominal value (₦1.00₦1.00) minus reissue price (₦0.80₦0.80) = ₦0.20₦0.20 per share discount
When shares are reissued below nominal value as fully paid, the difference represents a discount debited to the Forfeited Shares account.
3
Calculate the net gain per share on reissued shares
Amount forfeited per share (₦0.65₦0.65) minus discount per share (₦0.20₦0.20) = ₦0.45₦0.45 net gain per share
The profit on reissue is the excess of forfeited proceeds over the reissue discount.
4
Multiply the net gain per share by the number of reissued shares
2,000 reissued shares×₦0.45=₦9002,000 \text{ reissued shares} \times ₦0.45 = ₦900
Only the profit realized on shares that have been reissued is transferable to the Capital Reserve account; unissued forfeited balances remain in the Forfeited Shares account.

Key Concept

Capital Reserve Transfer on Share Reissue
Rate this question

Topics

Forfeiture and Re-issue of Shares

More questions from this topic