Question

Assertion (A): Maximum amount of discount allowed at the time of reissue of forfeited shares should not exceed the forfeited amount.

Reason (R): The excess amount of forfeited shares account is transferred to capital reserve account.

In the context of the above statements, identify the correct option.

Options

• (A) is correct, but (R) is wrong.

• Both (A) and (R) correct.

• (A) is wrong, but (R) is correct.

• Both (A) and (R) are wrong.

Answer 1

Both (A) and (R) correct.

Explanation:

Assertion (A): True – On reissue, the discount cannot exceed what the company has already received on those forfeited shares.

Reason (R): True – After reissue, the balance left in the forfeited shares account is treated as capital profit and transferred to Capital Reserve.