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If the forfeited shares are issued at a premium, the amount of the premium shall be credited to
- a)Profit and loss account
- b)Capital reserve account
- c)Share forfeiture account
- d)Share premium account
Correct answer is option 'D'. Can you explain this answer?
Verified Answer
If the forfeited shares are issued at a premium, the amount of the pre...
Explanation:
To understand the correct answer, let's break down the given information:
- Forfeited shares are the shares that were originally issued to a shareholder but were later taken back by the company due to non-payment.
- When forfeited shares are reissued, they can be issued at a premium, which means the new shareholders have to pay more than the face value of the shares.
- The premium amount received on the reissue of forfeited shares needs to be accounted for.
The correct answer is D: Share premium account. Here's why:
- The Share Premium Account is a reserve account that records the premium amount received on the issue of shares.
- Share premium is not a part of the company's profit or loss; it represents the excess amount received over the face value of the shares.
- When forfeited shares are reissued at a premium, the premium amount is credited to the Share Premium Account.
- By crediting the premium to the Share Premium Account, the company can keep track of the additional funds raised through the premium and maintain a clear record of the shareholders' equity.
To summarize:
- Share premium is the excess amount received over the face value of shares.
- When forfeited shares are reissued at a premium, the premium amount is credited to the Share Premium Account.
- This helps maintain a clear record of the shareholders' equity and the additional funds raised through the premium.
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If the forfeited shares are issued at a premium, the amount of the premium shall be credited toa)Profit and loss accountb)Capital reserve accountc)Share forfeiture accountd)Share premium accountCorrect answer is option 'D'. Can you explain this answer?
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