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 book keeping and accountancy reserve and fund kinds of reserves secret reserve reserves

Redeemable preference shares of $Rs. 2,00,000$ are redeemed at par for which purpose fresh equity capital of $Rs. 80,000$ is issued at par. What amount should be transferred to Capital Redemption Reserve account?

  1. Nil
  2. $Rs. 80,000$
  3. $Rs. 1,20,000$
  4. $Rs. 2,00,000$
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Redeemable preference shares :                                             $Rs.200000$

Fresh Equity Shares                                                                  $Rs.80000$
                                                                                                  -------------------
Balance Amount                                                                        $Rs.120000$
                                                                                                  --------------------
                                                                                                                               
An amount of $Rs.120000$ need to be transferred to Capital Redemption Reserve Account. 

Multiple choice book keeping and accountancy reserve and fund kinds of reserves secret reserve reserves

Redeemable preference shares of $Rs.2,00,000$ are redeemed at par for which purpose fresh equity capital of $Rs.80,000$ is issued at a discount of $10\%$.
What amount should be transferred to Capital Redemption Reserve account?

  1. $Rs. 1,20,000$
  2. $Rs. 1,28,000$
  3. $Rs. 2,00,000$
  4. $Rs. 72,000$
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Redeemable preference shares :                                             $Rs.200000$

Fresh Equity Shares                                           $Rs.80000$
Less: Discount on issue of shares @10%          $Rs.  8000$
                                                                           -----------------------   $Rs. 72000$
                                                                                                       ----------------------
Balance amount                                                                             $Rs.128000$
                                                                                                          -------------------
An amount of $Rs.128000$ need to be transferred to Capital Redemption Reserve Account. 

Multiple choice book keeping and accountancy reserve and fund kinds of reserves secret reserve reserves

The balance of Capital Redemption Reserve Account is available for ___________.

  1. redemption of redeemable preference shares

  2. redemption of redeemable debentures

  3. re-organisation of share capital

  4. issue of bonus shares
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation
Section 63 of the companies Act, 2013 deals with the issue of bonus shares. According to Sub-section (1) of this section, a company may issue fully paid-up bonus shares to its members, in any manner whatsoever, out of -
1. its free reserves;
2. the securities premium account; or
3. the capital redemption reserve account.
Multiple choice organization of commerce and management ownership structures - cooperative society features, merits and demerits, formation and management of a cooperative society meaning and features of cooperative society cooperative organisation

According to Indian Cooperative Societies Act, $1912$, each society must transfer at least ________ of its profits to general reserve.

  1. One-third

  2. One-fourth

  3. One-half

  4. One-tenth
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

According to Indian Cooperative Societies Act, 1912 it is the responsibility of every type of cooperative society to transfer at least one-fourth of their profit to gerenal reserve in case of future uncertainties.

Multiple choice elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

A stock dividend is paid out of ________________.

  1. current earnings

  2. retained earnings

  3. capital surplus

  4. paid-in-surplus
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

A stock dividend is a distribution of additional shares to shareholders, which is accounted for by transferring an amount from retained earnings to paid-in capital.

Multiple choice commercial applications marketing mix - 4 p's meaning and objectives of pricing pricing strategies pricing

The capitalization rate of a company whose market price per share is Rs.28, net income is Rs.20 lakhs and the number of outstanding shares is 5.6 lakh is _____________.

  1. 0.039

  2. 0.078

  3. 0.127

  4. 0.156

  5. 0.254
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Capitalization rate = earning per share / market price of the share
Earnings per share = 20 lakh / 5.6 lakh = Rs. 3.5714 per share.

Multiple choice organisation of commerce and management sources of business finance - 2 equity shares share and stock equity and preference shares

X limited issued 10,000 equity shares of Rs.10 each at premium Rs.2 each. The company has incurred issue expenses of Rs.5,000. The equity shareholders expect dividend of $18\%$ then cost of capital is ____________.

  1. $18\%$
  2. $15.65\%$
  3. $16.65\%$
  4. $18.65\%$
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

K$ _e$ = $\frac{D _1}{NP}$
Where NP i.(E) Net Proceed of shares = $\frac{1000 X12 - 5000}{10000}$
Dividend of a share (D$ _I$) = Rs. 1.8.

Multiple choice organisation of commerce and management sources of business finance - 2 equity shares share and stock equity and preference shares

Which of the following feature(s) of preference shares are similar to those of equity shares?

  1. Redeemability

  2. No obligation to pay dividend

  3. Voting rights

  4. Change over assets

  5. Both (B) and (C) above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Like in the case of equity shareholders there is no obligatory payment to the preference shareholders and the preference dividend is not tax deductable.

Multiple choice organisation of commerce and management sources of business finance - 2 equity shares share and stock equity and preference shares

Equity share holders may receive ___________ on their investment.

  1. Interest

  2. Dividend

  3. Bonus

  4. (B) and (C)
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Equity share holders may receive  dividend and bonus on their investment. Dividend refers to the sum of money which are paid out of the total profits and bonus refers to the one time payment.

Multiple choice organisation of commerce and management sources of business finance - 2 equity shares share and stock equity and preference shares

The issuer company cannot make allotment of shares unless ______________.

  1. There is over subscription

  2. The minimum subscription has been subscribed

  3. Promoter has subscribed

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

Minimum Subscription: It is said to be the minimum amount which as per the directors must be raised by issuing shares to overcome various expenses like working capital required, preliminary expenses, repayment of money borrowed or any other payment etc. Company has to make sure that it must receive share applications for minimum subscription as mentioned in the prospectus, before it applies for the certificate pf commencement of business. Company has to refund back all the money received from the applicants and cannot make any allotment, if the amount of capital subscribed by the public is less than the minimum subscription or if the company could not get minimum subscription within 120 days of the issue of prospectus.

Multiple choice organisation of commerce and management sources of business finance - 2 equity shares share and stock equity and preference shares

The premium on issue of shares must be treated as __________.

  1. Revenue Receipt

  2. Deferred Revenue Receipt

  3. Capital Receipt

  4. Capital Loss
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation
Capital Receipt:-

These have a nature of non-recurrence, besides that, they are situated in the balance sheet in the liabilities portion of them. The capital receipt is always in the interchange for the income. The capital receipt is a kind of cash-flow in the business that does not occur over and over again and this eventually, leads to the creation of liabilities in the future and also, the decrement of assets takes place in the future.

All of the capital receipts are free from taxation unless there is a provision to tax it. Various types of Gifts and loans are the types of the capital receipts that do not attract tax and are tax-free. So, in addition to non-recurring, Capital receipts are those non-routine receipts which either becomes a load and responsibility or cause a vivid depletion in the assets of the government or any organization and business.

The following sources are the generators of the capital receipt:
• Additional capital and mentioned assets introduced by the owner or the possessor
• Debentures and the other  issues of debt instruments
• Loans borrowed from a bank or from a financial institution.
• Various insurance Claims.
• Issue of Shares
So, basically, capital receipts are those that are the derivation of the not so normal operations of a business. Besides that, the effect of capital receipt is depicted in the balance sheet. These receipts are not at all a part of normal operations of government business. For example, a sale of fixed assets, etc.
Multiple choice organisation of commerce and management sources of business finance - 2 equity shares share and stock equity and preference shares

If forfeited shares are re-issued at a premium, the amount of such premium should be creted to ______________.

  1. Capital Reserve Account

  2. Securities Premium Account

  3. Revenue Reserve Account

  4. Profit & Loss Account
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation
Issue of Shares at Premium:

Shares are said to be issued at premium when they are issued at a price higher than the face value.
 
The excess of issue price over face value is referred to as ‘share premium’ or ‘security premium’, which is credited to a separate account called ‘securities premium account’.
 
For example, A Ltd. issues 10,000 shares of face value of ₹ 10 each at ₹ 12 per share. Here ₹ 2 (₹ 12 - ₹ 10) is treated as ‘security premium’.
 
The amount collected as share premium is disclosed under ‘Reserves and Surplus’ on the liabilities side of the balance sheet.
 
Section 78 of The Companies Act has laid down the following purposes for which the securities premium can be utilized:
To issue fully paid bonus shares to its members
To write off preliminary expenses of the company
To write off expenses in relation to the issue of shares or debentures of the company
To provide for premium payable on redemption of preference shares and debentures of the company
Multiple choice elements of accounts accounts from incomplete records stakeholders and their information requirements ascertainment of profit and loss calculation of profit or loss under single entry system of accounting and statement of affairs accounts from incomplete records - single entry system

Call option is?

  1. A contract to buy a certain number of shares at a stated price within a specified period of time.

  2. A contract to sell a certain number of shares at a stated price within a specified period of time.

  3. The option of the issuing company to demand the shareholders to pay for the partly paid shares.

  4. The option available to the convertible debenture holders to demand equity shares in conversion of debentures.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

A call option is an agreement that gives the option buyer the right to buy the underlying asset at a specified price within a specific time period.