share warrant forfeiture

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

31 May 2010 a company invested in equity share warrants. it paid minimum subscription amount and balance was to be paid within 18 months from the date of issue of warrants. subsequently, the investor company was unable to pay the balance amount and the warrants were forfieted. can the investor company transfer forfeiture amount to General reserve a/c. Is there any resolution required to be passed for warrant forfeiture.

Rasesh

Rasesh (Expert)
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06 June 2010 A Board resolution should be passed at the end of the tenure. The fact that the subscribers were unable to pay the balance amount should be noted and that the application / subscription amount is forfeited should also be properly documented.

This being in the nature of profit / misc income should be treated accordingly. The income should be properly taxed and the balance may be kept in profit and loss account or general reserve, as may be decided by the management.

Directly routing the transaction to general reserve is not the right way of showing it.