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) What is the amount of Profit on reissue of Forfeited Shares Accounts transferred to capital reserve?

The correct answer is Rs. 2500.

Step-by-Step Explanation:

1. Understand the Share Details:
Nominal (Face) Value per share = Rs. 10
Issue Price per share = Rs. 12 (Rs. 10 Face Value + Rs. 2 Premium)
The payment schedule is as follows:
• On Application: Rs. 5 per share (including Rs. 2 premium, so Rs. 3 is towards share capital and Rs. 2 is towards securities premium)
• On Allotment: Rs. 4 per share
• On First & Final Call: The balance amount.
To find the balance on call:
Total Issue Price (Rs. 12) - Application (Rs. 5) - Allotment (Rs. 4) = Rs. 3 per share.

2. Analyze the Forfeited Shares:
An allottee of 500 shares failed to pay the call money due on May 01, 2024.
Therefore, the unpaid amount on these 500 shares is the call money:

$$\text{Unpaid Call Money}=500\text{shares}\times \text{Rs.}3=\text{Rs.}\mathrm{1,500}$$

This shareholder had successfully paid the application money and the allotment money.
Amount paid by this shareholder towards the face value (excluding premium):
• Application stage (excluding premium): Rs. 3 per share
• Allotment stage: Rs. 4 per share
Total paid-up capital contribution per share = Rs. 3 + Rs. 4 = Rs. 7 per share.
The total amount forfeited and credited to the Share Forfeiture Account for these 500 shares is:

$$\text{Amount Forfeited}=500\text{shares}\times \text{Rs.}7=\text{Rs.}\mathrm{3,500}$$

Note: The securities premium of Rs. 2 received during application is not forfeited to the Share Forfeiture Account as it is maintained in the Securities Premium Account.

3. Analyze the Reissue of Forfeited Shares:
These 500 shares were reissued as fully paid-up (face value of Rs. 10) at Rs. 8 per share.
Since the shares were reissued at Rs. 8, the discount allowed on reissue is:
Discount per share = Rs. 10 (Face Value) - Rs. 8 (Reissue Price) = Rs. 2 per share.
Total discount allowed on reissue of 500 shares:

$$\text{Discount on Reissue}=500\text{shares}\times \text{Rs.}2=\text{Rs.}\mathrm{1,000}$$

This discount is adjusted by debiting the Share Forfeiture Account.

4. Calculate the Transfer to Capital Reserve:
The net profit on reissue of forfeited shares is transferred to the Capital Reserve Account.

$$\text{Transfer to Capital Reserve}=\text{Total Amount Forfeited on Reissued Shares}-\text{Discount Allowed on Reissue}$$

Substituting the calculated values:

$$\text{Transfer to Capital Reserve}=\text{Rs.}\mathrm{3,500}-\text{Rs.}\mathrm{1,000}=\text{Rs.}\mathrm{2,500}$$

Thus, the profit on the reissue of forfeited shares transferred to the capital reserve is indeed Rs. 2,500.