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    Question

    When shares are forfeited due to non-payment of call money, the amounts previously paid by the shareholder are credited to the Share Forfeiture Account. If there is any excess balance remaining in this account after reissuing the forfeited shares, it must be transferred to a specific account in the financial statements. Which account is used to transfer the excess balance from the Share Forfeiture Account?

    A Forfeiture Correct Answer Incorrect Answer
    B Capital Reserve Correct Answer Incorrect Answer
    C Premium Correct Answer Incorrect Answer
    D Reserve Capital Correct Answer Incorrect Answer
    E General Reserve Correct Answer Incorrect Answer

    Solution

    When shares are forfeited, the amount paid by the shareholders up to the point of forfeiture is credited to the Share Forfeiture Account. If these forfeited shares are later reissued at a discount or at face value, any excess balance remaining in the Share Forfeiture Account is transferred to the Capital Reserve Account. This account is used for specific purposes as defined by company law and cannot be distributed as dividends.

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