Sakshi Ltd. forfeited 500 equity shares of Rs. 10 each, issued at a premium of Rs. 2 per share for non-payment of second and final call of Rs. 4 per share (including premium). The maximum amount of discount at which these shares can be reissued is :
Sakshi Ltd. forfeited 500 equity shares of Rs. 10 each, issued at a premium of Rs. 2 per share for non-payment of second and final call of Rs. 4 per share (including premium). The maximum amount of discount at which these shares can be reissued is :
Options
Correct option: (C) Rs. 8 per share
Of the total Rs. 12 per share due (Rs. 10 face value + Rs. 2 premium), the unpaid second and final call was Rs. 4 per share (including the premium of Rs. 2). So the amount actually received and forfeited = = Rs. 8 per share, entirely towards share capital since the premium was never received. The maximum discount permissible on reissue equals this forfeited amount, i.e., Rs. 8 per share.
Marking Scheme
- 11 mark for correctly computing the amount forfeited per share () and identifying this as the maximum permissible discount, option (C).
Hint
Maximum discount on reissue = amount already received on the forfeited shares (issue price minus the unpaid call amount).
Quick Oral Answer
The maximum discount allowed on reissue of forfeited shares equals the amount already received and forfeited from the original allottee, which here works out to Rs. 8 per share.
Analysis & Explanation
Concept
When forfeited shares are reissued at a discount, the discount can never exceed the amount already forfeited and standing to the credit of the Share Forfeiture Account for those shares (the amount actually received from the original allottee towards share capital).
Working
- Total amount per share due = Face value (Rs. 10) + Premium (Rs. 2) = Rs. 12
- Unpaid second and final call = Rs. 4 per share (including premium of Rs. 2, i.e., part capital + part premium unpaid)
- Amount already received (forfeited) = per share; since the entire unpaid premium falls within this unpaid call, no premium was ever actually received, so the full Rs. 8 forfeited relates purely to share capital
Hence the maximum discount on reissue = Rs. 8 per share, matching option (C).
Why other options are wrong
- (A) Rs. 1 per share is far too low and does not correspond to any figure in the problem.
- (B) Rs. 6 per share wrongly assumes only part of the forfeited amount is usable.
- (D) Rs. 5 per share does not match the actual amount forfeited (Rs. 8).
Common Mistakes
- 1Including the unpaid premium as part of the 'amount forfeited', when premium not actually received cannot be credited to the forfeiture account at all.
- 2Assuming the maximum discount equals the full face value or the full called-up amount rather than only the amount actually paid by the original shareholder.
- 3Forgetting that the premium included in an unpaid call is simply cancelled, not reversed from Securities Premium (since it was never credited there in the first place).
Interesting Facts
The rule limiting reissue discount to the forfeited amount ensures a company never issues shares below the cash actually received for them across both allottees — a safeguard against share capital erosion.
Real-world listed Indian companies rarely reissue forfeited shares at a discount in practice, since SEBI listing norms and market perception make reissue at par or premium far more common.
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Frequently Asked Questions
What is the rule for maximum discount on reissue of forfeited shares?
The discount allowed on reissue can never exceed the amount already forfeited (received) from the original shareholder on those shares, which is credited to the Share Forfeiture Account.
Does unpaid premium count towards the forfeited amount?
No. If the premium was never received (because it was included in an unpaid call), it cannot be treated as forfeited — the forfeited amount only comprises money actually received.