Question

Assertion (A): When the shares are forfeited, share capital account is debited with the amount called up and credited to:
(i) respective unpaid calls account i.e., calls in arrears and
(ii) share forfeiture account with the amount already received on shares.
Reason (R): When the shares are forfeited, all entries relating to the shares forfeited, except those relating to securities premium, already recorded in accounting records must be reversed.

• A. Both Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A).
• B. Both Assertion (A) and Reason (R) are correct, but Reason (R) is not the correct explanation of Assertion (A).
• C. Assertion (A) is incorrect, but Reason (R) is correct.
• D. Assertion (A) is correct, but Reason (R) is incorrect.

Hint:

In share forfeiture, the share capital account is always debited for the amount called up, and any received amount is credited to the Share Forfeiture Account, while unpaid amounts go to Calls in Arrears.

Answer 1

The Correct Option is A

- Upon forfeiture of shares, the unpaid portion of the amount previously called up is debited from the Share Capital Account. The following credits are made: 1. Calls in Arrears Account: Credited with the outstanding call amounts. 2. Share Forfeiture Account: Credited with the amounts previously remitted. - Furthermore, share forfeiture nullifies previous journal entries pertaining to the forfeited shares, excluding those related to the securities premium, which remains unaffected. - Consequently, both Assertion (A) and Reason (R) are accurate, and Reason (R) provides a valid explanation for Assertion (A).