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

Capital Redemption Reserve can be used for _______________.

  1. Issue of fully paid up Bonus Shares

  2. Payment of Dividend

  3. Both (a) and (b)

  4. Writing off losses
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The Capital Redemption Reserve (CRR) is a restricted reserve created under the Companies Act and can only be used for specific purposes, such as issuing fully paid-up bonus shares.

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

Which of the following statements is false?

  1. Capital redemption reserve cannot be used for writing off miscellaneous expenses and losses.

  2. Capital profit realised in cash can be used for payment of dividend.

  3. Reserves created by revaluation of fixed assets are not used for issue of bonus shares.

  4. Dividend is payable on the calls paid in advance by shareholders.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

   Option D is the correct one.

Disclosure in Balance Sheet Calls in advance is shown separately, in the Balance Sheet as a liability of the company under the heading 'Current Liabilities' until the calls are made and the amount actually becomes payable by the shareholder. 
A company may pay interest on such amount received in advance at the rate of 12% p.a. No dividend is payable on this amount. It adjusts the amount of calls-in-advance for the payment of calls when they become due. Interest payable on Calls-in- Advance is a liability against the profits of the company.

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

In case of issue of shares amount received above par value is credited to which account?

  1. Security Premium A/c

  2. Discount A/c

  3. Share forfeiture A/c

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

The issue of shares at par implies that the shares have been issued for an amount exactly equal to their face or nominal value. 

In case shares are issued at a premium, i.e. at an amount more than the nominal or par value of shares, the amount of premium is credited to a separate account called ‘Securities Premium Reserve Account’ under the head Reserves and surplus in the balance sheet.

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

Securities Premium can be used by the company :

  1. To adjust Loss on revaluation of Assets

  2. To Issue fully paid Bonus shares

  3. To Pay dividend

  4. To Adjust trading Loss
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The issue of shares at par implies that the shares have been issued for an amount exactly equal to their face or nominal value. In case shares are issued at a premium, i.e. at an amount more than the nominal or par value of shares, the amount of premium is credited to a separate account called ‘Securities Premium Reserve Account’ under the head Reserves and surplus in the balance sheet.

It can be used only for the following five purposes:-

(a) To issue fully paid bonus shares to the extent not exceeding un-issued share capital of the company;

(b) To write-off preliminary expenses of the company;

(c) To write-off the expenses of, or commission paid, or discount allowed on any securities of the company; and

(d) To pay premium on the redemption of preference shares or debentures of the company.

(e) Purchase of its own shares (i.e., buy back of shares).

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

According to Section 78 of the companies Act, the amount in the Securities Premium A/c cannot be used for the purpose of __________.

  1. Issues of fully paid bonus shares

  2. Writing off losses of the company

  3. Writing of preliminary expenses

  4. Writing off commission or discount on issues of shares
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The issue of shares at par implies that the shares have been issued for an amount exactly equal to their face or nominal value. In case shares are issued at a premium, i.e. at an amount more than the nominal or par value of shares, the amount of premium is credited to a separate account called ‘Securities Premium Reserve Account’ under the head Reserves and surplus in the balance sheet.

It can be used only for the following five purposes:

(a) To issue fully paid bonus shares to the extent not exceeding unissued share capital of the company;

(b) To write-off preliminary expenses of the company;

(c) To write-off the expenses of, or commission paid, or discount allowed on any securities of the company; and

(d) To pay premium on the redemption of preference shares or debentures of the company.

(e) Purchase of its own shares (i.e., buy back of shares).

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

A Ltd., Had $3,000$, $12\%$ Redeemable preference shares of Rs. $100$ each, fully paid up. The company issued $25,000$ equity shares of Rs. $10$ each at par and $1,000$ $14\%$ Debentures of $100$ each. All amounts were received in full. The payment was made in full. The amount to be transferred to capital Redemption Reserve Account Rs _________.

  1. Nil
  2. Rs. $2,00,000$
  3. Rs. $3,00,000$
  4. Rs. $50,000$
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation
Value to be transferred to CRR account :-
= Value of preference shares redeemed - new shares issued
= (3,000 shares x RS-100each) - (25,000 shares x RS-10 each)
= 3,00,000 - 2,50,000
= RS-50,000.
Multiple choice book keeping and accountancy reserve and fund kinds of reserves secret reserve reserves

If vendors are issued fully paid shares of Rs. $1,00,000$ in consideration of net assets of Rs. $1,20,000$ the balance of Rs. $20,000$ will be credited to _____________.

  1. Goodwill account

  2. Capital Reserve account

  3. Vendor's account

  4. Profit and loss account
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

When the purchase consideration (1,00,000) is less than the value of net assets acquired (1,20,000), the difference represents a capital gain, which is credited to the Capital Reserve account.

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

A company wishes to redeem its preference shares amounting to Rs. 1,00,000 at a premium of $5\%$ and for this purpose issues 5,000 equity shares of Rs. 10 each at a premium of $5\%$. The company also has a balance of Rs. 1,00,000 as general reserves  and Rs. 50,000 in profit & loss account. The amount to be transferred to capital redemption reserves account for the purpose of redemption is:

  1. Rs. 47,500

  2. Rs. 50,000

  3. Rs. 52,500

  4. Rs. 1,05,000
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

From the above conditions 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 amouunt 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. 50000 = Rs. 50000

(Rs. 100000 = Nominal value of share redeemed)

(Rs. 50000 = Nominal value of share issued)

(Rs. 50000 = Capital redemption reserve)

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 Co-operative Societies Act, $1912$, may distribute maximum up to ______ of its surplus as dividend to its members.

  1. $100$ per cent
  2. $90$ per cent
  3. $50$ per cent
  4. $25$ per cent
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation
According to Indian Cooperative Societies Act, 1912, the cooperative society can distribute maximum up to 90 percent of its overall surplus to its members in the form of dividend. 
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 elements of business classification of human activities characteristics of business activities economic and non-economic activities human activities - commercial and non-commercial activities
The nominal value of qualification shares of directors must not exceed Rs._________.

  1. 2000

  2. 5000

  3. 1000

  4. 1500
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The Article of Association of a company may require the directors of the company to hold some minimum shares at the time of his appointment within certain time prescribed under the Companies Act. The nominal value of the qualification shares shall not exceed Rs 5000.