Match each scenario or rule regarding the forfeiture and re-issue of shares on the left with its appropriate accounting treatment on the right.
- Amount debited to the Share Capital Account when shares are forfeitedTotal called-up value on the forfeited shares
- Maximum discount allowed when re-issuing forfeited sharesAmount previously paid up (forfeited) on those specific shares
- Net profit remaining in the Forfeited Shares Account after complete re-issueTransferred as a capital gain to the Capital Reserve Account
- Excess amount received over nominal value upon re-issuing forfeited sharesCredited to the Share Premium Account
Answer
The correct pairings are: Amount debited to Share Capital Account matches Total called-up value on the forfeited shares; Maximum discount allowed on re-issue matches Amount previously paid up (forfeited) on those specific shares; Net profit remaining in Forfeited Shares Account matches Transferred as a capital gain to the Capital Reserve Account; Excess amount received over nominal value matches Credited to the Share Premium Account.
Each event corresponds to its underlying double-entry principle in company accounting: share cancellation requires debiting called-up capital, re-issue discount is limited to forfeited amounts, residual gains are capital reserves, and premiums go to the Share Premium Account.
Step-by-Step Solution
Key Concept
Accounting Rules for Forfeiture and Re-issue of Shares