Read the following passage and answer the questions

On January 1, 2024, the Director of X Ltd. issued for public subscription 50,000 equity shares of Rs. 10 each at Rs. 12 per share payable, Rs. 5 on application (including premium), Rs. 4 on allotment and the balance on call on May 01, 2024. The issue was closed on February 10, 2024 by which date applications for 70,000 shares were received.

Of the cash received Rs. 40,000 was returned and Rs.60,000 was applied to the amount due on allotment, the balance of which was paid on February 16, 2024. All the shareholders paid the call due on May 01, 2024 with the exception of an allottee of 500 shares. These shares were forfeited on September 29, 2024 and reissued as fully paid at Rs. 8 per share on November 01, 2024. The company, as a matter of policy, does not maintain a calls-in-arrears account.

Q) On Forfieture of 500 shares for non-payment of call money, what amount will be credited to Shares Forfeiture Account ?

The correct option is Rs. 3500.

Step-by-Step Explanation:

1. Understand the Share Values and Payment Structure:
The shares have a nominal (face) value of Rs. 10 each, issued at a premium of Rs. 2 per share (total issue price = Rs. 12 per share).
The payment is structured as follows:
• Application: Rs. 5 per share (including Rs. 2 premium, which means Rs. 3 is towards capital and Rs. 2 is towards Securities Premium).
• Allotment: Rs. 4 per share.
• Call (due on May 01, 2024): The balance of the face value and premium. Let's calculate the balance:
Total issue price = Rs. 12
Amount payable on Application and Allotment = Rs. 5 + Rs. 4 = Rs. 9
Balance on Call = Rs. 12 − Rs. 9 = Rs. 3 per share.

2. Determine the Amount Received on the Forfeited Shares:
An allottee of 500 shares failed to pay the call money (Rs. 3 per share). These 500 shares were subsequently forfeited.
This means the shareholder paid the Application money (Rs. 5) and the Allotment money (Rs. 4), but failed to pay the Call money (Rs. 3).
Total amount received per share from this shareholder = Rs. 5 (Application) + Rs. 4 (Allotment) = Rs. 9 per share.

3. Apply the Rules for Share Forfeiture:
When shares are forfeited, the amount already received towards the face value of the shares (excluding any premium already received) is transferred (credited) to the Share Forfeiture Account.
Here, the Rs. 5 received on application includes a Rs. 2 premium.
Since the securities premium of Rs. 2 has already been received, it cannot be forfeited or adjusted. Under accounting standards, the securities premium account is not reversed if it has already been realized.
Therefore, we exclude the premium from the amount credited to the Share Forfeiture Account:
Amount paid towards nominal value per share = Total paid per share − Premium received per share
Amount paid towards nominal value per share = Rs. 9 − Rs. 2 = Rs. 7 per share.

4. Calculate the Total Amount Credited to the Share Forfeiture Account:
Number of forfeited shares = 500
Amount to be credited per share = Rs. 7
Total Amount Credited = 500 shares × Rs. 7 per share = Rs. 3,500.

Thus, on forfeiture of the 500 shares, the amount credited to the Shares Forfeiture Account is Rs. 3500.