Accounting for share Capital Test - 25

When, the shares are forfeited for non-payment of called up money, the amount paid-up on such shares is also forfeited, which is a capital receipt. Here, 10 shares are forfeited on which Rs. 2 per share was paid up. So, amount forfeited = Rs. 2 x 10 = Rs. 20. The proportionate amount of forfeiture for 8 shares = Rs. 20 / 10 x 8 = Rs. 16. 

Out of these, 8 shares were reissued at Rs. 8 called up at Rs. 6 per share. Here, a discount of Rs. 2 (Rs. 8 – 6) is given to Neeraj, which is a capital loss. So, amount of discount, for which forfeited amount will be utilised = Rs. 2 x 8 = Rs. 16. 

Hence, after the reissue of 8 shares, Rs. 0 (Rs. 16 – 16) will be transferred to the capital reserve A/c.

According to Section 52 of the Act, securities premium can be used for the following purposes: 

1. For the issue of fully paid bonus share capital. 

2. For meeting the preliminary expenses incurred by the company. 

3. For meeting the expenses, commission or discount incurred concerning securities previously issued by the company. 

4. For ensuring the availability of the premium on the redemption of redeemable debentures or preference share capital of the company. 

5. For funding a scheme or buy-back of securities.