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

Directions: Choose the correct option for the given question.

Which of the following heads of balance sheet of a company will be affected, when bonus issue was declared?

(i) Share Capital (ii) Reserve and Surplus (iii) Current Liabilities and Provision

  1. (i) & (ii)

  2. (ii) & (iii)

  3. (i) & (iii)

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

When a bonus issue is declared, shares are issued to existing shareholders free of cost by capitalizing reserves. This affects two balance sheet heads: (i) Share Capital increases as new shares are issued, and (ii) Reserves and Surplus decreases as the amount is transferred from reserves (like Securities Premium, General Reserve, etc.) to Share Capital account. Current Liabilities and Provisions are not affected because bonus issue is a capitalization of reserves, not a transaction involving current liabilities. The total shareholders' equity remains unchanged, only its composition changes.

Multiple choice

The swap ratio fixed for RIL, RPL merger is

  1. 1 : 2

  2. 1 : 6

  3. 1 : 9

  4. 1 : 11

  5. 1 : 3
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The RIL (Reliance Industries Limited) and RPL (Reliance Petroleum Limited) merger had a swap ratio of 1:11. This meant shareholders received 1 share of RIL for every 11 shares of RPL held.

Multiple choice

In a company or firm, shareholder wealth is represented by the

  1. number of employees working in the firm

  2. book value of the firm's assets minus liabilities

  3. salary paid to employees

  4. market price per share of the firm's common stock

  5. none of these
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

 Shareholder wealth is represented by teh market price per share of the firm's common stock

Multiple choice

Many times we read in financial newspapers/magazines about 'Share Swap' done by big corporates. What is 'Share Swap'?

  1. A business take over in which acquiring company uses its own stock to pay for the acquired company
  2. When a company uses its own shares to get some short term loan for working capital requirement, it is known as share swap
  3. When companies are required to float a new issue to earn capital for their expansion programmes, each share holder gets some additional preferential shares. The process of the allotment of preferential share is known as Share swap

  1. Only 1

  2. Only 2

  3. Only 1 and 2

  4. Only 3
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Share Swap is a business takeover method where the acquiring company uses its own stock to pay for the acquired company, instead of cash. This allows the acquiring company to conserve cash while giving the acquired company's shareholders ownership in the new combined entity.

Multiple choice

Dividends are usually paid as a percentage of

  1. paid-up capital

  2. authorised share capital

  3. called-up capital

  4. net profit

  5. None of these
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Correct answer; after calculating taxes from net profit, dividends are calculated as a percent.

Multiple choice

Buy back of shares is meant for

  1. public limited companies but not in India

  2. public limited companies in India

  3. only American companies

  4. none of these
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Share buybacks are not restricted to specific types of companies or regions. Public limited companies in various countries can engage in share buybacks, not just American companies. Options A, B, and C all incorrectly limit buybacks to specific company types or locations. Since none of these limitations are accurate, 'none of these' is the correct answer.

Multiple choice

Directions: Choose the correct option for the given question:

XYZ Ltd. issued 10,000 shares of Rs. 100 each at Rs. 120 per share with Rs. 25 on application, Rs. 45 on allotment including premium, Rs. 20 on first call and Rs. 30 on final call. Govind, who held 200 shares did not pay any call money and his shares were forfeited. What is the amount to be credited to Share Forfeiture Account on forfeiture?

  1. Rs. 14,000

  2. Rs. 10,000

  3. Rs. 9,000

  4. Rs. 4,000
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Govind paid Rs. 25 on application and Rs. 45 on allotment (including premium). Total amount paid before forfeiture = Rs. 25 + Rs. 45 = Rs. 70 per share. For 200 shares, total forfeiture amount = 200 × Rs. 70 = Rs. 14,000. However, the share forfeiture account is only credited with the amount actually received, which is Rs. 50 per share (Rs. 25 application + Rs. 25 allotment excluding premium). So 200 × Rs. 50 = Rs. 10,000. Wait, let me recalculate: Rs. 25 application + Rs. 45 allotment = Rs. 70 total received per share. Share Forfeiture Account is credited with the amount received from shareholders, which is Rs. 70 × 200 = Rs. 14,000. But the claimed answer is B (Rs. 10,000). Let me reconsider: If the share capital is Rs. 100 and premium is Rs. 20, then allotment of Rs. 45 includes Rs. 20 premium and Rs. 25 towards capital. So amount paid towards capital = Rs. 25 (application) + Rs. 25 (allotment capital portion) = Rs. 50. Share Forfeiture Account is credited with the amount forfeited, which would be Rs. 50 × 200 = Rs. 10,000.

Multiple choice

Directions: Choose the correct option for the given question:

X Ltd. purchased a car from Maruti Udyog Ltd. for Rs. 5,00,000. As per agreement Rs. 80,000 was to be paid in cash and the balance by issue of shares of Rs. 10 each at a premium of Rs. 5 per share. How many shares should X Ltd. issue to Maruti Udyog Ltd. for the car ?

  1. 30,000

  2. 29,000

  3. 28,500

  4. 28,000
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Total purchase price = Rs. 5,00,000. Cash payment = Rs. 80,000. Balance to be paid by shares = Rs. 5,00,000 - Rs. 80,000 = Rs. 4,20,000. Each share has face value Rs. 10 and premium Rs. 5, so issue price per share = Rs. 10 + Rs. 5 = Rs. 15. Number of shares = Rs. 4,20,000 / Rs. 15 = 28,000 shares.

Multiple choice

Directions: Choose the correct option for the given question.What is Capital Redemption Reserve Account available for ?

  1. Redemption of redeemable preference shares

  2. Redemption of redeemable debentures

  3. Reorganization of share capital

  4. Issue of fully paid bonus shares
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Capital Redemption Reserve is created when a company redeems shares out of profits. This reserve can only be used for issuing fully paid bonus shares to shareholders, not for redemption of shares or debentures. This provision under the Companies Act protects capital and ensures shareholders receive benefits from the company's earnings used for redemption.

Multiple choice

Directions: Choose the best answer from the listed choice.

CEO exit or appointment can effect drastic changes in the share prices of a company.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

CEO exits or appointments often trigger significant stock price movements due to investor perceptions about strategic direction changes, leadership continuity, and future company performance under new management. Markets react to such leadership transitions as signals of potential shifts in corporate strategy.