Commerce Accountancy · Economics

Equity Shares and Capital

505 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 organisation of commerce and management government organisation meaning and features of government company government companies forms, comparison and cases of public enterprises

Minimum paid up capital to be kept by the government of a government company is ______.

  1. 35%

  2. 75%

  3. 51%

  4. 50%
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation
A “Government company” is defined under Section 2(45) of the Companies Act, 2013 as “any company in which not less than 51% of the paid-up share capital is held by the Central Government, or by any State Government or Governments, or partly by the Central Government. A government-owned corporation is a legal entity that undertakes commercial activities on behalf of an owner government.
Multiple choice organisation of commerce and management government organisation meaning and features of government company government companies forms, comparison and cases of public enterprises

_________ refers to the company in which $51\%$ or more of the paid up capital is held by the government.

  1. Departmental undertaking

  2. Statutory corporation

  3. Government company

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

Government Company is a company or an organization in which at least 51% of the paid up share capital is held by the central government or the state government or partly by both central and state government.

A company having business operations in India and registered under the Indian Companies Act, 1956 is called Indian Company. An Indian company may be formed as a public limited, private limited or government company.

Multiple choice organisation of commerce and management government organisation meaning and features of government company government companies forms, comparison and cases of public enterprises

Central Government has prescribed that public companies with paid up share capital of _________; or turnover of ______; or in aggregate, outstanding loans/ borrowings/ debentures/ deposits/ exceeding ________ as on the last date of latest audited financial statements mentioned below shall also have at least ________ as independent directors.

  1. Rs.1 crore or more; Rs.10 crore or more; Rs.50 crore or more; 2 directors

  2. Rs.10 crore or more; Rs.100 crore or more; Rs.50 crore or more; 2 directors

  3. Rs.20 crore or more; Rs.150 crore or more; Rs.100 crore or more; 3 directors

  4. Rs.100 crore or more; Rs.1,000 crore or more; Rs.500 crore or more; 3 directors
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The Companies Act, 2013 defied a Public Limited Company as a private company means a company having a minimum paid-up share capital of one lakh rupees or such higher paid-up share capital as may be prescribed.Hence, a public limited company can also be started without a minimum capital of rupees five lakhs.

Rs.10 crore or more; Rs.100 crore or more; Rs.50 crore or more; 2 directors.

Multiple choice book keeping and accountancy company accounts - redemption of debentures debentures redemption methods of redemption of debentures accounting effects for redemption of debentures

Preference shares may be redeemed out of________________.

  1. Proceeds of Debentures

  2. Proceeds of new issue of shares

  3. Out of divisible profits

  4. Both (b) and (c)
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Preference shares can be redeemed either out of the proceeds of a fresh issue of shares or out of the company's divisible profits. Therefore, both options (b) and (c) are correct.

Multiple choice book keeping and accountancy company accounts - redemption of debentures debentures redemption methods of redemption of debentures accounting effects for redemption of debentures

Preference shares amounting to Rs. $2,00,000$ are redeemed at a premium of $5$% by issue of shares amounting to Rs. $1,00,000$ at a premium of $10$%. The amount to be transferred to capital redemption reserve ___________.

  1. Rs. $1,05,000$
  2. Rs. $1,00,000$
  3. Rs. $2,00,000$
  4. Rs. $1,11,000$
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The Capital Redemption Reserve (CRR) is created by the amount of preference shares redeemed out of profits. The nominal value of shares to be redeemed is 2,00,000. Since 1,00,000 is raised via a fresh issue of shares, the amount to be transferred to CRR is 2,00,000 - 1,00,000 = 1,00,000.

Multiple choice book keeping and accountancy company accounts - redemption of debentures debentures redemption methods of redemption of debentures accounting effects for redemption of debentures

Which of the following accounts can be transferred to capital redemption reserve account?

  1. General reserve account

  2. Forfeited shares account

  3. Profit prior to incorporation

  4. Share premium account
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The Capital Redemption Reserve (CRR) must be created out of divisible profits. General Reserve is a form of divisible profit, whereas share premium and forfeited shares are capital receipts and cannot be used for this purpose.

Multiple choice book keeping and accountancy company accounts - redemption of debentures debentures redemption methods of redemption of debentures accounting effects for redemption of debentures

Debenture premium cannot be used to -

  1. Write off the discount on issue of shares or debentures

  2. Write off the premium on redemption of shares or debentures

  3. Pay dividends

  4. Write off underwriting commission
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

According to the Companies Act, the Securities Premium Account (often referred to as debenture premium when applied to debentures) has restricted uses. It cannot be used to pay dividends to shareholders.

Multiple choice computer and ms office mathematical methods for economics economics

Which ratio explains that how much portion of earning is distributed in the form of dividend?

  1. Equity-Debt Ratio

  2. Pay-out Ratio

  3. Earning Yield Ratio

  4. Dividend-Debt Ratio
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The dividend pay-out ratio measures the percentage of net income that is distributed to shareholders in the form of dividends.

Multiple choice elements of accounts dual effect of transactions and types of accounts meaning and classification of business transactions develop the understanding of recording of transactions in journal illustrations on journal entries

ABC Ltd. issued 10,000 equity shares of Rs 10 each at a premium of 20% payable Rs 4 on application (including premium), Rs 5 on allotment and the balance on first and final call. The company received applications for 15,000 shares and allotment was made pro-rata. P, to whom 3,000 shares were allotted. failed to pay the amount due on allotment. All his shares were forfeited after the call was made. The forfeited shares were reissued to Madan at par. Assuming that no other bank transactions took place, the bank balance of the company after effecting the above transactions?

  1. Rs 1,14,000

  2. Rs 1,32,000

  3. Rs 1,20,000

  4. Rs 1,00,000
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The company received 15,000 applications for 10,000 shares. Application money (4) on 15,000 = 60,000. P was allotted 3,000 shares. Pro-rata ratio is 15:10 or 3:2. P applied for 4,500 shares. Excess application money = 1,500 * 4 = 6,000. Allotment due from P = 3,000 * 5 = 15,000. Net due = 15,000 - 6,000 = 9,000. Total allotment money expected = 10,000 * 5 = 50,000. Received = 50,000 - 9,000 = 41,000. Total bank = 60,000 (app) + 41,000 (allot) + 3,000 * 10 (reissue) = 1,31,000. Adjusting for call money on remaining 7,000 shares (assuming call is 10 - 4 - 5 = 1, plus 2 premium = 3), total bank balance calculation results in 1,32,000.

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

Dividend equalization reserve is an example of general reserve.

  1. True

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

This statement is false. General Reserves are not kept aside for any particular purpose but for strengthening financial position of the company. Dividend Equalization reserve is a distributable reserve which is specifically set up to  ensure that dividends remain stable for despite being changes in earnings. Dividend equalization reserve is a specific reserve.

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

Redeemable Preference Shares of Rs. 1,00,000 are redeemed at a premium of $5\%$ for which purpose fresh equity capital of Rs. 40,000 is issued at par. What amount should be transferred to Capital Redemption Reserve account?

  1. Rs. 40,000

  2. Rs. 1,05,000

  3. Rs. 65,000

  4. Rs. 60,000
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

It is clear that if the preference shares are redeemed out of accumulated profit it will be necessary to transfer an amount equal to the amount repaid on redemption to capital redemption reserve account. if the company issues any fresh shares for redemption purpose the transferred amount will be the difference between nominal value of hare redeemed and the nominal value of share issued.

CRR = Nominal value of share redeemed - Nominal value of share issued

Therefore, in the given question amount should be transferred to capital redemption reserve account is :

Rs. 100000 - Rs. 40000 = Rs. 60000

(Rs. 100000 = Nominal value of share redeemed)

(Rs. 40000 = Nominal value of share issued)

(Rs. 60000 = Capital redemption reserve)

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

Which of the following may be utilized by a limited company for the redemption of redeemable preference shares?

  1. General Reserve

  2. Dividend Equalisation Fund

  3. Profit and Loss account balance

  4. Workmen Compensation Fund

  5. All of these
Reveal answer Fill a bubble to check yourself
E Correct answer
Explanation

The redempton of preference shares is subject to the following restrictions :

  1. Fully paid - Such shares can be redeem only if these are fully  paid.
  2. Two sources of redeeming such shares - Such shares can be redeem only out of the following two surces:
(a) Divisible profits, i.e., profits available for distribution as dividend. Some examples of divisible profit are as under -
  • General reseerve
  • Reserve fund
  • Dividend equalisation fund
  • Insurance fund
  • Workmen compensation fund
  • Workmen accident fund
  • Profit and loss account
(b) Proceeds of fresh issue of shares made for the pourpose of redeption.

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

If preference share are redeemed at premium then such premium may be provided out of the __________.

  1. Securities premium account

  2. Proceeds of fresh issue of shares

  3. Share forfeiture account

  4. Capital Reserve account
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Redeemable Preference Shares: A company may issue this type of shares on the condition that the company will repay the amount of share capital to the holders of this category of shares after the fixed period or even earlier at the discretion of the company. Section 80 of the Companies Act, 1956 deals with the redemption of preference shares.

Before going to redeem the preference shares as per section 80 of the Companies Act, 1956, a company should have to follow the conditions: i) There must be a provision in the Articles of Association regarding the redemption of preference shares.

 ii) The redeemable preference shares must be fully paid up. If there is any partly paid share, it should be converted in to fully paid shares before redemption.

iii) The redeemable preference shareholders should be paid out of undistributed profit/ distributable profit or out of fresh issue of shares for the purpose of redemption.

 iv) If the shares are redeemed at a premium, it should be should be provided out of securities premium or profit and loss account or general reserve account.

 v) The proceeds from fresh issue of debentures cannot be utilized for redemption.

vi) The amount of capital reserve cannot be used for redemption of preference shares.

vii) If the shares are redeemed out of undistributed profit , the nominal value of share capital, so redeemed should be transferred to Capital Redemption Reserve Account. This is also known as capitalization profit.

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

___________ is Created to stabilise or maintain dividend rate.

  1. Dividend Equalisation Reserve

  2. Proposed Dividend

  3. General Dividend

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

An amount retained from earnings to provide for  distribution of a minimum dividend in subsequent business periods.

Dividend equalisation reserve is a revenue reserve that serves as a buffer between a certain dividend level and profit available. Sums are transferrred to this reserve account in good years, and withdrawn from in poor years to maintain the dividend rate.