Question

Determine the maximum permissible discount which a company can allow at the time of reissue of forfeited shares in the following cases:
(i) A share of Rs. 10 originally issued at par on which application and allotment money of Rs. 5 has been received.
(ii) A share of Rs. 10 originally issued at a premium of Rs. 1 on which application and allotment money (including premium) of Rs. 5 has been received.
(iii) A share of Rs. 10 originally issued at a premium of Rs. 1 on which application and allotment money (excluding premium) of Rs. 5 has been received.

Answer 1

(i) Money received in respect of capital on shares forfeited is Rs. 5. Therefore, maximum permissible discount to be allowed is also Rs. 5.
(ii) Money received in respect of Capital is Rs. 4 (that is, total money received less premium money received ), therefore, maximum permissible discount which can be allowed at the time of reissue is Rs. 4.
(iii) In this case, money received on shares forfeited in respect of capital is Rs. 5, and , therefore, this is the amount of maximum permissible discount.