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Company Accounts: Share Issue, Forfeiture & Redemption

Comprehensive quiz covering issue of shares (at premium, discount, par), call-in-advance and call-in-arrears, forfeiture of shares, re-issue of forfeited shares, and redemption of preference shares with Capital Redemption Reserve calculations.

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Questions

Question 1 Multiple Choice (Single Answer)

According to Table A (16), if a sum called in respect of a share is not paid before or on the day fixed for payment, the person from whom the sum is due shall pay interest. What is the rate of interest on call-in-arrears?

  1. 5% p.m.

  2. 5% p.a.
  3. 6% p.m.
  4. 6% p.a.
Question 2 Multiple Choice (Single Answer)

When a company issues shares at a premium & a sum equal to aggregate amount of premium on those shares, it shall be transferred to

  1. Share Premium A/c.
  2. Securities Premium A/c.
  3. Share Premium on Shares Application A/c.
  4. Share Premium on Shares Allotment A/c.
Question 3 Multiple Choice (Single Answer)

When a share is issued at its nominal value where par value is payable in installments through cash and no direct record is made in Cash Book and records for Application and allotment are made seperately:
<o:p> Which of the following entry is wrongly recorded in the books?

  1. Bank A/c
    To Share Application A/c
  2. Share Allotment A/c
    To Share Capital A/c
  3. Bank A/c
    Share Allotment A/c
  4. Bank A/c
    Share Call Capital A/c
Question 4 Multiple Choice (Single Answer)

ABC Ltd. issued 40,000 shares of Rs. 10 each to the public payable Rs. 2 on application, Rs. 4 on allotments and Rs. 4 on first call. Applications were received for 50,000 shares. Applications for 5,000 are rejected and application money is returned. Surplus of application money on 5,000 shares is utilized for allotment.

Which is the correct entry for the utilization of excess application money?

  1. Share Application A/c

    To Bank
  2. Share Allotment A/c
    To Share Capital A/c
  3. Share Application A/c
    To Share Allotment A/c
  4. Share Capital A/c
    To Share Application A/c
Question 5 Multiple Choice (Single Answer)

Which of the following is the wrong statement?

  1. Articles of Association mention the rate of interest on call-in-advance.
  2. Articles of Association mention the rate of interest on call-in-arrears.
  3. Rules of forfeiture are mentioned in Articles of Association.
  4. Articles of Association empowers the shareholders to accept surrender of shares.
Question 6 Multiple Choice (Single Answer)

All forfeited shares were re-issued @ Rs. 100 each. Which of the following journal entries relating to forfeiture & re-issue is correct?

  1. Forfeiture of Kapil's Shares:

    Equity Shares Capital A/c Rs. 27,000
    To Equity Shares Allotment A/c Rs. 12,000
    To Equity Shares First Call A/c Rs. 6,000
    To Forfeited Shares A/c Rs. 9,000
  2. Forfeiture of Shivam's Shares:

    Equity Shares Capital A/c Rs. 40,000
    To Equity Shares First Call A/c Rs. 8,000
    To Forfeited Shares A/c Rs. 32,000
  3. Forfeiture of Vishal's Shares:

    Equity Shares Capital A/c Rs. 22,000
    To Equity Shares Second and Final Call A/c Rs. 2,000
    To Forfeited Shares A/c Rs. 20,000
  4. Entry of re-issue:
    Bank A/c Rs. 90,000
    To Share Capital A/c Rs. 90,000
Question 7 Multiple Choice (Single Answer)

Amit Ltd. issued 6,000 equity shares of Rs. 10 each, payable as Re. 1 on application, Rs. 3 on allotment, Rs. 2 on first call and the balance on final call. But Ajay, who holds 300 equity shares, did not pay first and final call amount on these shares and Vijay, who holds 100 shares did not pay final call amount. All other amounts were duly received.
<o:p> Which entry related to calls is wrongly recorded in the books of company?

  1. Equity Share First Call A/c 12,000
    To Equity Share Capital A/c 12,000
  2. Bank A/c 11,400
    To Equity Share First Call A/c 11,400
  3. Equity Share Final Call A/c 22,800
    To Equity Share Capital A/c 22,800
  4. Bank A/c 22,400
    To Equity Share Final Call A/c 22,400
Question 8 Multiple Choice (Single Answer)

A Ltd. issued 3,000 equity shares of Rs. 10 each at a discount of 10%. On these shares, payments are to be made as follows: Rs. 2 on application, Rs.3 on allotment and Rs. 5 on first and final calls. Anil, who is a holder of 800 shares has not paid the first and final call, hence, his share have been forfeited and have been reissued at a discount of 10%.
<o:p> What is the amount of Forfeited Shares A/c transferred to Capital Reserve A/c after re-issue of forfeited shares?

  1. Rs. 4,000
  2. Rs. 800
  3. Rs. 2,400
  4. Rs. 3,200
Question 9 Multiple Choice (Single Answer)

If redemption is made by using divisible profits then an amount of profit so used for redeeming nominal value would be transferred to ………………. A/c.

  1. Dividend Equalisation Fund
  2. General Reserve
  3. Capital Redemption Reserve
  4. Securities Premium
Question 10 Multiple Choice (Single Answer)

A company issued 1,000 equity shares of Rs.10 each at a discount 10%. The final call of Rs.3 was not paid by 'Z' who holds 100 shares and his shares were forfeited. Half of the forfeited shares were reissued at Rs.8 per share fully paid.
<o:p>
What amount of Forfeited Shares A/c remains after the re-issue of shares?

  1. Rs. 600
  2. Rs. 250
  3. Rs. 300
  4. Rs. 50
Question 11 Multiple Choice (Single Answer)

A company issued 100 equity shares of Rs.100 each at a discount of 10% to Raj. Raj failed to pay first call of Rs. 20 and second & final calls of Rs. 30 per share. As such, Raj's shares were forfeited. Which is the correct journal entry for forfeiture of shares?

  1. Equity Share Capital A/c 9,000
    To Share First Call A/c 2,000
    To Share Second and Final Call A/c Rs. 3,000
    To Forfeited Share A/c 4,000
  2. Equity Share Capital A/c 10,000
    To Discount on Issue of Share A/c 1,000
    To Share First Call A/c 2,000
    To Share Second and Final Call A/c Rs. 3,000

    To Forfeited Share A/c 4,000
  3. Equity Share Capital A/c 10,000
    To Share First Call A/c 2,000
    To Share Second and Final Call A/c Rs. 3,000
    To Forfeited Share A/c 5,000
  4. Equity Share Capital A/c 9,000
    To Discount on Issue of Share A/c 1,000
    To Share First Call A/c 2,000
    To Share Second and Final Call A/c Rs. 3,000
    To Forfeited Share A/c 3,000
Question 12 Multiple Choice (Single Answer)

Which of the following statements is correct about the issue of shares at discount?

  1. A resolution in regard to issue of shares at discount must be passed in Board Meeting.
  2. The resolution must specify the maximum rate of discount not more than 7.5%.
  3. The period of the issue of shares at discount should not be less than two years from the date of commencement of business.
  4. The shares must be issued within 2 months of Court's permission.
Question 13 Multiple Choice (Single Answer)

A Company has already issued 30,000 5% Redeemable Preference Shares of Rs. 100 each on which Rs. 80 per share has been received. The Company wants to redeem these shares at a premium of 5%. The company has sufficient profits for distribution, but to increase liquid assets, it issues the following:

  1. 10,000 Equity Shares of Rs. 100 each at a Premium of 10%.
  2. 10,000 5% debentures of Rs. 100 each.
    The above scheme was executed and full amount is received.

Which of the following is incorrect?

  1. Redeemable Preference Shares are redeemable only when they are fully paid up.
  2. The amount payable on redemption is Rs. 31,50,000.
  3. Principal amount of Rs. 30 lacs is to be returned whereas Rs. 10 lacs have been received from the issue of fresh Equity Shares & Rs.10 lacs have been received on 5% Debentures. Therefore, the balance of Rs.10 lacs shall be paid out of Profits.
  4. Share Premium of Rs. 1,50,000 has to be paid on redemption. This shall be paid as Rs. 1,00,000 out of the Premium received from issue of fresh Equity Shares and the balance of Rs. 50,000 from Profits.
Question 14 Multiple Choice (Single Answer)

Z Limited made the following issue of shares :
(i) To a vender who supplied machinery costing Rs.4, 40,000, 4000 Equity shares of Rs.100 each at a premium of 10%,
(ii) 1000, 10% Preference shares of Rs.500 each at a premium of 5%, and
(iii) 2000 Equity shares of Rs. 100 each at discount of 5%.
(iv) 500 Equity shares of Rs. 100 each at par to the promoters.

Which one of the following entries about issue of shares is correctly recorded?

  1. Entry for point (i):
    Vender's Personal A/c Rs. 4, 40,000
    To Equity Share Capital A/c Rs. 4, 40,000
  2. Entry for point (ii):
    Bank A/c 5, 25,000
    To 10% Preference Share Capital A/c Rs. 5, 25,000
  3. Entry for point (iii):
    Bank A/c 1,90,000
    To Equity Share Capital A/c Rs. 1,90,000
  4. Goodwill A/c Rs. 50,000
    To Equity Share Capital A/c Rs. 50,000
Question 15 Multiple Choice (Single Answer)

XYZ Ltd. forfeits 1000 shares of Rs. 10 each on which a shareholder has paid only Rs. 2 on application but failed to pay Rs. 3 on allotment and Rs. 3 on first and final calls. Which is the correct entry for forfeiture?

  1. Share Capital A/c - 10,000
    To Share Allotment A/c - 3,000
    To Share First and Final Call A/c - 5,000
    To Share Application - Rs. 2,000
  2. Share Capital A/c - 2,000
    To Forfeited Share A/c - 2,000
  3. Share Capital A/c 10,000
    To Share Allotment A/c - 3,000
    To Share First and Final Call A/c - 5,000
    To Forfeited Share A/c - 2,000
  4. Share Capital A/c 8,000
    To Share Allotment A/c 3,000

    To Share First and Final Call A/c - 5,000
Question 16 Multiple Choice (Single Answer)

Tata Limited issued a prospectus offering 20,000 shares of Rs. 10 each at a par payable as follow:
On application and allotment Rs. 2; on first call Rs. 4 and on final call Rs. 4. Sumesh, the holder of 1000 equity shares did not pay the amount due on both the calls. These 1000 shares were forfeited by the Board of Directors and these 1000 shares were subsequently reissued at Rs. 9 per share.
Which is incorrect entry related to forfeiture and re-issue?

  1. Share Capital A/c 10,000
    To Share First Call A/c 4,000
    To Share Final Call A/c Rs. 4,000
    To Forfeited Share A/c 2,000
  2. Bank A/c Rs. 9,000
    Forfeited Share A/c 1,000
    To Share Capital A/c Rs.10,000
  3. Forfeited Share A/c Rs.2,000
    To Capital Reserve A/c 2,000
  4. Share Application and Allotment A/c 2,000
    To Forfeited Share A/c 2,000
Question 17 Multiple Choice (Single Answer)

Capital Redemption Reserve account is available only for issue of fully paid……….

  1. equity shares
  2. preference shares
  3. right shares
  4. bonus shares
Question 18 Multiple Choice (Single Answer)

The Directors of Chirag Ltd. resolved that 2,000 equity shares of Rs. 10 each, Rs.7 paid be forfeited for non-payment of final call of Rs. 3. 1,000 of these shares were re-issued for Rs. 6 per share.
After recording of above entries, following information comes out:

  1. Rs. 14,000 charged to Forfeited Shares A/c at the time of forfeiture.

  2. Rs. 4,000 charged to Forfeited Shares A/c at the time of re-issue.

  3. Rs. 3,000 of Forfeited Shares A/c transferred to Capital Reserve A/c.

  4. Rs. 6,000 of Forfeited Shares A/c remains after re-issue & shown in the liability side of the Balance Sheet.

<o:p> Which of the above information is wrong?

  1. Only 1
  2. Only 2
  3. Only 3
  4. Only 4
Question 19 Multiple Choice (Single Answer)

The following balances in the books of ABC Ltd:
10% Redeemable Preference Share Capital Rs. 4,00,000
General Reserve Rs. 90,000
Securities Premium Rs. 20,000
Profit and Loss (Cr.) Rs. 48,000
The Company redeems 6% Redeemable Preference Shares by issue of Equity Shares of Rs. 10 each. Fresh issue of shares is made in lots of 100 shares.
Calculate the number of fresh shares to be issued.

  1. 40,000
  2. 26,200
  3. 24,200
  4. 35,200
Question 20 Multiple Choice (Single Answer)

A Joint Stock Company issued 20,000 Equity Shares of Rs. 10 each. Amount due on these shares was as under:
Rs. 2 on Application (1st January)
Rs. 3 on Allotment (1st February)
Rs. 3 on First Call (1st July)
Rs. 2 on Final Call (1st Nov)
Ajit paid full amount on 1,000 shares upto Final Call along with First Call. Vijay paid First Call and Final Call money along with Allotment on 500 shares. According to rules, 6% interest is payable on amount received in advance.

What is the value of interest payable to Ajit on Call-in-Advance?

  1. Rs. 40
  2. Rs. 38
  3. Rs. 45
  4. Rs. 123
Question 21 Multiple Choice (Single Answer)

A Company issued 20,000 6% Redeemable Preference Shares of Rs. 100 each (fully paid-up). These shares are redeemable @ 10% Premium on 31st Dec 2010. A provision of Rs. 40,000 is made every year out of divisible profits for redemption of these shares.
Which of the following is wrongly passed?

  1. Profit and Loss Appropriation A/c Rs. 40,000
    To Capital Reserve A/c Rs. 40,000
  2. 6% Redeemable Preference Shares A/c 20,00,000
    Premium on Redemption of Shares A/c Rs. 2,00,000
    To 6% Redeemable Preference Shareholders A/c 22,00,000
  3. Profit and Loss Appropriation A/c Rs. 2,00,000
    To Premium on Redemption of Shares A/c Rs. 2,00,000
  4. 6% Redeemable Preference Shareholders A/c 22,00,000
    To Bank Rs, 22,00,000
Question 22 Multiple Choice (Single Answer)

Section 80 of The Companies Act lays down the following conditions for the redemption of preference shares:

  1. Preference Shares must be fully paid.
  2. Redeemable preference shares can be redeemed only out of divisible profits.
  3. Premium on Redemption of shares be written off through profits or/and Securities Premium of the Company.
  4. The amount of Securities Premium cannot be utilized for the payment of the nominal value of shares.
    Which of the above conditions is incorrect?
  1. Only 1
  2. Only 2
  3. Only 3
  4. Only 4
Question 23 Multiple Choice (Single Answer)

20,000 10% Redeemable Preference Shares of Rs. 100 each fully paid in SR Ltd. are outstanding. These shares are redeemed at Rs. 110 each & 1,000 Equity Shares of Rs. 100 each are issued at Rs. 120 for cash for the redemption. The balance of Profit and Loss Appropriation A/c is Rs. 12,00,000.
What is the amount of Profits utilized to write off Premium on Redemption of 10% Redeemable Preference Shares A/c?

  1. Rs. 2,00,000
  2. Rs. 1,80,000
  3. Rs. 20,000
  4. Rs. 12,00,000
Question 24 Multiple Choice (Single Answer)

10,000 7% Redeemable Preference Shares of Rs. 10 each fully paid in XYZ Ltd. are outstanding. These shares are redeemed at Rs. 11 each & 1,000 Equity Shares of Rs. 100 each are issued at Rs. 115 for cash for the redemption.
<o:p>
How to write off the Premium on Redemption of 7% Redeemable Preference Shares?

  1. Premium on Redemption of 7% Redeemable Preference Shares A/c 10,000
    To 7% Redeemable Preference Shares A/c 10,000
  2. Bank A/c Rs. 10,000
    To Premium on Redemption of 7% Redeemable Preference Shares A/c 10,000
  3. Securities Shares A/c Rs. 10,000
    To Premium on Redemption of 7% Redeemable Preference Shares A/c 10,000
  4. Profit and Loss Appropriation Rs. 10,000
    To Premium on Redemption of 7% Redeemable Preference Shares A/c 10,000
Question 25 Multiple Choice (Single Answer)

The following balances in the books of RS Ltd.:
10% Redeemable Preference Share Capital Rs. 4,00,000
General Reserve Rs. 75,000
Securities Premium Rs. 30,000
Profit and Loss (Cr.) Rs. 60,000
Dividend Equalization Fund Rs. 40,000
Workmen Compensation Fund Rs. 25,000
The redemption was carried out on due date, assume that the Company raised necessary bank loan.
<o:p>
Calculate the amount transferred to Capital Redemption Reserve.

  1. Rs. 2,00,000
  2. Rs. 2,30,000
  3. Rs. 1,35,000

  4. Rs. 1,75,000

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