Commerce Accountancy · Economics

Equity Shares and Capital

424 Questions

Equity shares and capital topics deal with corporate share issuance, forfeiture rules, dividend distributions, and yield calculations. Questions require an understanding of financial instruments like preference shares and call options. These concepts are essential for accountancy and commerce examinations.

Share valuationDividend yieldPreference sharesShare forfeitureCapital structure

Equity Shares and Capital Questions

Multiple choice

Match the options given in the above lists ||| |---|---| |LIST 1:|LIST 2:| |A. Conservative dividend policy|1. Dividend is paid at usual rate regularly.| |B. Irregular dividend policy|2. Dividend is paid at very low rate or zero.| |C. Regular dividend policy|3. Dividend is paid according to the earnings of company.| |D. Constant payout ratio|4. Fixed dividend is paid, irrespective of income.| |E. Constant DPS|5. Fixed percentage of net earnings is paid as dividend.| |F. Strict dividend policy| |

  1. A - 1, B - 2, C - 3, D - 4, E - 5, F - 6

  2. A - 6, B - 3, C - 1, D - 5, E - 4, F - 2

  3. A - 6, B - 5, C - 4, D - 3, E - 2, F - 1

  4. A - 2, B - 6, C - 4, D - 1, E - 3, F - 2

  5. A - 5, B - 6, C - 4, D - 2, E - 3, F - 1
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Regular dividends at the usual rate are paid by the companies following regular dividend policy.

Multiple choice

Facility of buy-back of shares is allowed in which of the following cases?

  1. Buy-back of shares is through any subsidiary company including its own subsidiary company.

  2. Buy-back of shares is through any investment company or a group of investment companies.

  3. Buy-back is by purchasing the securities issued to employees of the company.

  4. The company has defaulted in repayment of preference shares.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

 The buy-back can be made by purchasing the securities issued to existing employees of the company. So the facility of buy-back of shares is allowed when the company intends to purchase its own shares from its employees.

Multiple choice

Share Warrant is a

  1. duplicate certificate

  2. share surrender certificate

  3. negotiable Instrument

  4. none of these

Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

 Share Warrant is a negotiable instrument.  A share warrant shall entitle the bearer thereof to the shares therein specified and shares may be transferred by mere delivery of the warrant. 

Multiple choice

Which of the following amounts to buy-back of shares by a company?

  1. Redemption of preference shares

  2. Forfeiture of shares

  3. When company's own shares are purchased from the open market, by the company

  4. Acceptance of valid surrender of shares
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

 When own shares are purchased by the company from the open market at the prevailing market price as any other person would purchase them, it means that the company has purchased its own shares and it amounts to buy-back of shares.

Multiple choice

Lein on shares means

  1. a kind of security for a claim against a shareholder

  2. a kind of penal action against the shareholder

  3. a kind of legal obligation to be paid by the company

  4. a kind of negotiable instrument

Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

 Lein is a right of a person over the goods of another person in the form of a security for a claim upon that person. A company may have some claim upon a shareholder in relation to shares, therefore, it may mark its lien on the shares, so lien on shares is a kind of security for a claim against the shareholder.

Multiple choice

In which of the following cases, the membership of a shareholder is not terminated?

  1. When his shares are forfeited

  2. When he surrenders his shares

  3. When a shareholder's preference shares are redeemed

  4. When a share certificate is issued

Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

 The membership of a shareholder does not come to an end when a share certificate is issued. A share certificate is a certificate which certifies that he is the holder of a specified number of stated shares in the company. 

Multiple choice

Equity shares issued by a company to employees in exchange of making available intellectual assets to the company are known as

  1. Sweat-Equity Shares

  2. Bonus Equity Shares

  3. Buy-back of Equity Shares

  4. None of these

Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

 A company may attract outsiders to join the company and provide intellectual assets like patents, skills etc. in return of shares in the company. Such type of shares are known as sweat-equity shares.

Multiple choice

Directions: Choose the correct option for the given question.

For what purposes, share premium account can be used?

  1. To conduct the bonus issue

  2. To write off the preliminary expenses

  3. To write off discount on issue of shares

  4. All of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Share Premium (Securities Premium) can be used for: (1) Issuing fully paid bonus shares - the premium capitalizes free shares, (2) Writing off preliminary expenses of incorporation, and (3) Writing off discount or commission on issue of shares/debentures. These are the only statutory uses under company law - it cannot be distributed as dividend.

Multiple choice

Directions: Choose the correct option for the given question.

'Unclaimed dividend' is positioned in the balance sheet of a company under

  1. Secured Creditors

  2. Provisions

  3. Current Liabilities

  4. None of these
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Unclaimed dividend represents dividends declared by the company but not claimed by shareholders within the specified period (usually 7 years). Since this is a liability that the company owes to shareholders but remains unpaid, it is classified under Current Liabilities in the balance sheet. It is not a secured creditor claim (no security is involved), nor is it a provision (provisions are for estimated liabilities, not actual declared dividends).

Multiple choice

Directions: Choose the correct option for the given question.

Balance of share forfeiture account becomes

  1. Capital reserve

  2. Reserve Capital

  3. Either (1) or (2)

  4. None of these
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

When shares are forfeited (non-payment of allotment/call money) and later reissued, the Share Forfeiture Account balance represents the amount received from shareholders initially. After adjusting for any loss on reissue (if reissued at discount), the remaining credit balance in Share Forfeiture Account is transferred to Capital Reserve Account. Capital Reserve is created from capital profits and cannot be distributed as dividends. Reserve Capital is different - it's the portion of uncalled share capital that can be called only in winding up.