Which one of the following statements is not correct?

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UP TGT Commerce 2021 Official Paper
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  1. Forfeited shares can be reissued.
  2. A notice of 14 days to shareholders is necessary before forfeiture of shares.
  3. Premium on issue of shares can be used for writing off the preliminary expenses.
  4. The profit on re-issue of forfeited shares is transferred to General Reserve Account.

Answer (Detailed Solution Below)

Option 4 : The profit on re-issue of forfeited shares is transferred to General Reserve Account.
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The incorrect statement is The profit on re-issue of forfeited shares is transferred to General Reserve Account. 

Key PointsShares - a part or portion of a larger amount which is divided among a number of people, or to which a number of people contribute. The person who hold shares are called shareholders.

Important PointsOption 1: Forfeited shares can be reissued.

Explanation:

  • Forfeited shares may be issued again as fully paid at a par, premium,  discount.
  • It should be noted that the discount permitted on reissue of forfeited shares cannot exceed the amount received on forfeited shares at the time of first issue, and that the discount allowed on reissue of forfeited shares shall be deducted to the 'Forfeited Share Account.'
  • Hence, this statement is true

Option 2: A notice of 14 days to shareholders is necessary before forfeiture of shares.

Explanation:

  • In the event that the amount on calls is not paid, a firm may forfeit shares. Prior to forfeiture, the corporation must first send the defaulting shareholder a clear 14-day notice that he must pay the outstanding balance plus interest.
  • Hence, this statement is true

Option 3: Premium on issue of shares can be used for writing off the preliminary expenses.

Explanation:

  • Preliminary expenses are any costs incurred before a firm is created, or before the start of corporate operations.
  • Any initial business expenses may be deducted from the Securities Premium Account.
  • Hence, this statement is true

Option 4: The profit on re-issue of forfeited shares is transferred to General Reserve Account.

  • The profit on re-issue of forfeited shares is transferred to Capital Reserve Account.
  • Hence, this statement is false.

Thus, in above question "the profit on re-issue of forfeited shares is   transferred to General Reserve Account is not correct"

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