Question

Match the following: 

List - I		List - II
A.	Share Forfeiture Account	I.	Capital Profit
B.	Securities Premium	II.	Capital Reserve
C.	Reissue of Forfeited Shares	III.	Share Capital

• A. A-I, B-II, C-III
• B. A-II, B-III, C-I
• C. A-III, B-II, C-I
• D. A-I, B-III, C-II

Hint:

While the gain on forfeiture is a capital profit, the ultimate balance left in the Share Forfeiture account after reissue is transferred to "Capital Reserve".

Answer 1

The Correct Option is A

Step 1: Understanding the Concept:
This matching exercise evaluates the understanding of the nature of different components involved in the accounting for share capital.
In corporate accounting, transactions are broadly divided into "Revenue" (recurring business activities) and "Capital" (non-recurring, related to the structure of the business or its financing).
The items in List I represent specific accounts or events in a company's lifecycle, and List II represents their fundamental accounting classification or the financial statement head they belong to.
Step 2: Detailed Explanation:
1. Share Forfeiture Account (A): When shares are cancelled due to non-payment, the money already received from the shareholder is kept by the company. This is a surplus arising from a non-trading transaction (forfeiting owners' equity). Since this profit is not earned through regular business sales, it is a Capital Profit (I). It represents a gain on a capital transaction.
2. Securities Premium (B): When a company issues shares at a price higher than the face value, the extra amount is "Securities Premium." Legally, this premium is a capital receipt and cannot be distributed as a dividend. It is kept in a separate account and used for specific purposes like issuing bonus shares or writing off expenses. Due to its restricted usage and nature as a long-term surplus, it is classified under "Reserves and Surplus" and behaves as a Capital Reserve (II).
3. Reissue of Forfeited Shares (C): Once forfeited shares are sold to a new person, the "dead" shares become "active" again. The value of these shares (up to the face value) must be restored to the company's capital pool. Therefore, the process of reissuing essentially adds these units back into the Share Capital (III) shown in the Balance Sheet. The paid-up capital of the company increases by the paid-up value of the reissued shares.
Step 3: Final Answer:
The correct matching is A with I (Share Forfeiture is a Capital Profit), B with II (Securities Premium is a Capital Reserve nature item), and C with III (Reissue restores Share Capital). Option (A) is the correct choice.