Question

Assertion: Forfeited shares can be reissued at a discount.

Reason: The amount received by a company on forfeited shares can be used to cover the discount on the reissues of forfeited shares.

Which one of the following is correct?

Options

• Both Assertion and Reason are true and Reason is the correct explanation for Assertion.

• Both Assertion and Reason are true but Reason is not the correct explanation for Assertion.

• Assertion is true and Reason is false.

• Both Assertion and Reason are false.

Answer 1

Both Assertion and Reason are true and Reason is the correct explanation for Assertion.

Explanation:

Forfeited shares can be reissued at a discount, but only up to the amount received for those shares before the forfeiture. This forfeited money is used to replace the loss incurred by reissuing the shares at a lower price than their face value. Hence, both Assertion and Reason are true and Reason is the correct explanation for Assertion.