When shares are forfeited, the amount already received from the shareholder is credited to Share Forfeiture Account. This represents the profit on forfeiture.
When these forfeited shares are reissued at a discount, the discount amount (loss on reissue) is debited to Share Forfeiture Account.
The formula becomes:
Balance in Share Forfeiture Account = Amount forfeited (Profit) - Discount on reissue (Loss)
This balance is then transferred to Capital Reserve.
Example: 100 shares of ₹10 each, ₹8 called up. Final call of ₹2 not paid.
Amount forfeited = ₹8 - ₹2 = ₹6 per share (credited to Share Forfeiture A/c)
If reissued at ₹7 per share → Discount = ₹3 per share (debited to Share Forfeiture A/c)
Balance transferred to Capital Reserve = ₹6 - ₹3 = ₹3 per share
This is profit on forfeiture minus loss on reissue.
Correct Answer: Option 3