Question

The balance of share forfeiture account is transferred to which account? 
 

Hint:

Share Forfeiture leftover → Capital Reserve (capital profit, not revenue profit).

Answer 1

When shares are forfeited, the amount already received from defaulting shareholders is transferred to the Share Forfeiture Account. After the forfeited shares are reissued, any remaining balance that the company retains becomes a capital profit. Since this profit arises from a capital transaction and not business operations, it cannot be distributed as dividends. Therefore, it is transferred to the Capital Reserve. This reserve strengthens the company's financial position and is used for specific purposes such as issuing bonus shares or writing off capital losses. Hence, Capital Reserve is the correct destination for the forfeiture balance.