Question

A company's capital consists of 100 000 ordinary shares issued at $2 and paid to $1 per share.

On 1 September, a first call of 50c was made on the ordinary shares. By 30 September, the call money received amounted to $45 000. No further payments were received, and on 31 October, the shares on which calls were outstanding were forfeited. On 15 November, the forfeited shares were reissued as paid to $1.50 for a payment of $1 per share. The appropriate cash amount from the reissue was received on 19 November. Costs of reissue amounted to $1 500. The company's constitution provided for any surplus on resale, after satisfaction of unpaid calls, accrued interest and costs, to be returned to the shareholders whose shares were forfeited.

What is the remaining balance of the forfeited share account that is refundable to shareholders?

		$3 200
		$5 000
		$3 500
		$10 000

Answer 1

Total money that should have been received on shares = 50c * 100,000shares = $50,000

Amount of money received = $45,000

Amount that is not received = $5,000

Number of shares on which the amount is not paid = $5,000/50c = 10,000 shares

Initially when company forfeits the shares, the amount that has been received over those shares are credited to Forfeited Shares Account. On 10,000 shares $1 per share is already paid up, and first call of 50c was not paid.

Therefore on forfeiture, Forfeited Shares Account would have been credited by $10,000.

Now the shares are paid to $1.50 but only $1 is being received on re issue, therefore 50c discount is there on all shares which will be debited to Forfeited Shares Account along with any expense on re issue.

Therefore 50c * 10,000 shares = $5,000 and $1,500 cost of reissue will be debited to Forfeited Shares Account.

Hence, balance in Forfeited Shares Account = $10,000 - $5,000 - $1,500 = $3,500