Share Forfeiture Accounting: Identifying the Incorrect Statement
This solution analyzes the accounting treatment of forfeited shares to identify the statement that is not true.
Statement Analysis:
- Option 1: True. When not all forfeited shares are reissued, the remaining balance in the Forfeited Shares Account represents the realized gain on those shares that have not yet been reissued. This balance reflects the portion of the original paid-up amount related to the un-reissued shares.
- Option 2: True. The gain on forfeiture represents the maximum amount that can be recovered from the payments made by the shareholder. Any loss incurred upon the reissue of these shares reduces this gain. Therefore, the loss on reissue cannot exceed the total gain recognized from the forfeiture of those specific shares.
- Option 3: True. According to accounting principles, if shares were originally issued at a premium but this premium amount was not received from the shareholder, the Securities Premium account must be debited (and thus reversed) at the time of share forfeiture. This corrects the accounting entry since the premium was never actually received.
- Option 4: False. When forfeited shares are reissued at a price exceeding their face value (i.e., at a premium), this premium amount received on reissue is typically credited to the Securities Premium on Reissue account, not directly to the Capital Reserve Account. The net profit resulting from the forfeiture and subsequent reissue (i.e., the final balance in the Forfeited Shares Account after all adjustments) is the amount that gets transferred to the Capital Reserve Account.
Conclusion:
Option 4 describes an incorrect accounting treatment. The premium received upon reissue of forfeited shares is accounted for separately and does not bypass the Securities Premium on Reissue account to be directly credited to Capital Reserve.
Important Questions from Shares
Discount allowed on the reissue of forfeited shares cannot exceed
Rate of return on equity share capital is calculated after deducting _____ and _____ from the net profit before interest.
Which of the following statements are true?
1. A company cannot purchase its own equity shares.
2. A company can issue its shares at a discount by passing a special resolution.
3. The interest rate charged on calls-in-arrear and the interest rate payable on calls-in-advance are the same as per provisions of Table-F of Schedule-I of the Companies Act, 2013.
Identify the correct sequence of activities involved in the process of buy back of shares.
A. Letter of offer to the shareholders.
B. Opening of bank account.
C. Approval for Extra-ordinary General Meeting.
D. Convening board meeting.
E. Declaration of Solvency.
Choose the correct answer from the options given below:
Identify the correct statements in context of equity financing.
A. Borrowing limit increases as a consequence of increase in number of shares.
B. Ordinary shares are generally not redeemable.
C. Issue of new shares dilutes the EPS if the profits do not increase immediately in proportion to increase in number of shares.
D. A company is not legally oblidged to pay dividend.
E. Ordinary shares are less riskier from investor's perspective.
Choose the correct answer from the options given below:
