Question

Assertion (A): If 1,00,000 shares of ₹10 each of X Ltd. are fully called, Share Forfeiture amount of ₹6,000 on 1,000 forfeited shares will be added to Subscribed and Fully Paid Capital of ₹9,90,000.

Reason (R): If 1,00,000 shares of ₹10 each are ₹7 Called, Share Forfeiture amount of ₹8,000 on 2,000 forfeited shares will be added to Subscribed but Not Fully Paid Capital of ₹6,86,000.

In the context of the above two statements, which of the following is correct?

Options

• Both (A) and (R) are true, but (R) is not the correct explanation of (A).

• Both (A) and (R) are true and (R) is a correct explanation of (A).

• Both (A) and (R) are false.

• (A) is false, but (R) is true.

Answer 1

Both (A) and (R) are false.

Explanation:

Assertion (A):
1,00,000 shares of ₹10 each, fully called = ₹10 × 1,00,000 = ₹10,00,000
1,000 shares forfeited; amount forfeited = ₹6,000
Subscribed and fully paid capital = 99,000 × ₹10 = ₹9,90,000
True, and forfeiture amount is NOT added to capital, so ₹9,90,000 is correct. The assertion is true, but the reason is flawed.

Reason (R):
If shares are ₹7 called, subscribed capital = 98,000 × ₹7 = ₹6,86,000
2,000 shares forfeited; forfeiture = ₹8,000
Forfeiture is not added to subscribed capital
Incorrect reason, Securities premium or forfeiture is not added to subscribed capital