Danladi Manufacturing Plc forfeited 2,500 ordinary shares of ₦1.00 nominal value each due … — JAMB UTME

Danladi Manufacturing Plc forfeited $2,500$ ordinary shares of $₦1.00$ nominal value each due to non-payment of the final call of $₦0.30$ per share. All of the forfeited shares were subsequently reissued to a new subscriber as fully paid at $₦0.80$ per share. What is the net amount (in $₦$ ) transferred to the Capital Reserve account?

Answer: 1250 ₦

Answer

The net amount transferred to the Capital Reserve account is ₦1,250.

The total amount received on the

2,500

forfeited shares was

2,500 \times ₦0.70 = ₦1,750

. When the shares are reissued at

₦0.80

per share, the company grants a discount of

₦0.20

per share (

2,500 \times ₦0.20 = ₦500

). The net surplus remaining in the Forfeited Shares account (

₦1,750 - ₦500 = ₦1,250

) is credited to the Capital Reserve account.

Step-by-Step Solution

Determine the amount paid up per share prior to forfeiture

₦0.70 per share (₦1.00 called-up nominal value minus ₦0.30 unpaid call)

Only cash actually received from the defaulting shareholder is credited to the Forfeited Shares account.

Calculate the total credit balance in the Forfeited Shares account

2,500 shares × ₦0.70 = ₦1,750

This represents the total cash forfeited on the 2,500 shares.

Compute the discount allowed upon share reissue

2,500 shares × (₦1.00 - ₦0.80) = ₦500

The maximum discount allowed on reissue cannot exceed the amount previously forfeited per share.

Calculate the surplus balance transferred to Capital Reserve

₦1,750 - ₦500 = ₦1,250

The net profit realized on share forfeiture and reissue is a capital gain and must be transferred from the Forfeited Shares account to the Capital Reserve account.

Key Concept

Calculation of net capital gain on share reissue transferred to Capital Reserve

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