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

According to Walter, firm should pay 100% dividend if

  1. r > k

  2. r = k

  3. r < k

  4. none of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Walter's dividend model states that when a firm's return on investment (r) equals its cost of capital (k), shareholders are indifferent between receiving dividends now or having the firm reinvest earnings. In this equilibrium condition, paying 100% dividends maximizes shareholder wealth.

Multiple choice

Right shares enjoy preferential rights with regard to

  1. payment of dividend

  2. payment of retained earnings

  3. repayment of capital

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

Right shares are ordinary equity shares offered to existing shareholders with preemptive rights to maintain their proportional ownership, but they do not inherently carry preferential rights regarding dividend payment or capital repayment over other equity shares.

Multiple choice

Right shares carry preferential rights as regards to

  1. payment of retained earnings

  2. payment of dividend

  3. repayment of capital in the event of winding up of the company

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

 Right shares carry preferential rights for existing shareholders to buy additional shares in the company.

Multiple choice

As per the Companies Act, preference shares are redeemable within

  1. 24 years

  2. 22 years

  3. 30 years

  4. 20 years
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

According to Section 55, no company, limited by shares, shall issue irredeemable preference shares or preference shares redeemable after the expiry of 20 years from the date of issue. However, a Company may issue preference shares redeemable after 20 years for such infrastructure projects as may be specified, under the Companies Act, 2013.

Multiple choice

Reserve capital refers to

  1. capital reserve

  2. that portion of called up share capital which shall not be capable of being called up except in the event and for the purposes of the company being wound up

  3. that portion of uncalled share capital which can not be called up at any time before the company is being wound up

  4. none of the above
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

As per Section 65 of the Companies Act, 2013, a Company may decide by passing a resolution that a certain portion of its subscribed uncalled capital shall not be called up except in the event of winding up of the company which is called Reserve Capital. Reserve Capital is different from Capital reserve. Reserve capital which is portion of the uncalled capital to be called up in the event of winding up of the company is entirely different in nature from capital reserve which is created out of capital profits only.

Multiple choice

The issue price of a share can be demanded

  1. only on application

  2. only on allotment

  3. only on call

  4. in lumpsum or installments on application &/or allotment &/or call
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

According to Companies Act,2013 there is no restriction on companies to demand complete issue price of shares only on applcation or allotment or call of shares. Issue price can either be demanded in lumpsum or installments on application &/or allotment &/or call.

Multiple choice

An authorised capital refers to

  1. paid up value of all shares allotted

  2. called up value of all shares allotted

  3. nominal value of all shares offered to public

  4. that amount which is stated in the capital clause of the Memorandum of Association as the share capital
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Authorised Share Capital, i.e maximum amount a company can raise in its lifetime is to be mentioned in the Capital Clause of the Memorandum of Association.

Multiple choice

If a shareholder does not pay his dues on allotment, for the amount due, there will be a

  1. credit balance in the share allotment account

  2. debited balance in the share forfeiture account

  3. credit balance in the share forfeiture account

  4. debit balance in the share allotment account
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Share allotment A/c Dr      (Amount due)         To share Capital Cash Dr                           (Amount Received) Call in Arrears Dr           (Amount due)         To share allotment  Thus, there will be debit balance in share allotment account.

Multiple choice

Which of the following is not correct?

  1. Nominal capital is the maximum amount that a company is authorized to issue to the public without alternating the memorandum of a association.

  2. Subscribed capital is that part of nominal capital that is offered to the public for subscription

  3. Subscribed capital will be equal to the issued capital, when all the shares offered to the public are taken up by the public

  4. Called up capital is that part of the subscribed capital that has been called up.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Issued Capital is that part of nominal capital that is offered to the public for subscriptionSubscribed Capital is that part of the issued share capital, which is subscribed by the public i.e., applied by the public and allotted by the company. It also includes the face value of shares issued by the company for consideration other than cash.

Multiple choice

A Ltd. forfeited 50 shares of Rs. 100 each issued at 10% premium on which allotment money of Rs. 30 per share (including premium) and first call of Rs. 30 per share were not received, the second and final call of Rs. 20 per share was not yet called. If 20 of these shares were re - issued as Rs. 80 paid - up for Rs. 90 per share, the Profit on re - issue is -

  1. Rs. 1, 500

  2. Rs. 600

  3. Rs. 900

  4. Rs. 400
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Balance in Share forefeiture for 50 shares      =Rs 1500 (50*30) Balance in Share forefeiture for 20 shares      =Rs 600 [(20/50)*1500]Adjusted towards share capital                         =Rs 200(20*10)

Profit on re-issue w.r.t 20 shares                    =Rs 400 (600-200) 

Multiple choice

1000 shares of Rs. 10 each issued at par were forfeited for the non payment of the final call of Rs. 2 per share. These were re-issued @ Rs. 8 per share fully paid up. The profit on re-issue was

  1. Rs. 8, 000

  2. Rs. 6, 000

  3. Rs. 4, 000

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

Balance in Call Arrears A/c            = rs 2000 Amount received on re-issue         = Rs 8000 (8*1000) Amount of Profit on re-Issue           = 8000-2000 = Rs 6000

Multiple choice

A transfer to Capital Redemption Reserve is required u/s 55 when preference shares are redeemed

  1. by converting them into new preference shares

  2. by converting them into new equity shares

  3. out of divisible profits

  4. out of fresh issue of shares
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

As per Section 55 of Companies Act.2013,where preference shares are redeemed, otherwise than out of the proceeds of a fresh issue of shares (either equity or prefernce), there shall, out of profits which would otherwise have been available for dividends, be transferred to Capital Redemption Reserve Account, a sum equal to the nominal amount of the shares redeemed.

Multiple choice

A company forfeited 100 equity shares of Rs. 100 each issued at a premium of 50% (to be paid at the time of allotment) on which first call money of Rs. 30 per share was not received, final call of Rs. 20 is yet to be made. These shares were subsequently re - issued at Rs. 70 per share as Rs. 80 paid up. The profit on re - issue is

  1. Rs. 5, 000

  2. Rs. 4, 000

  3. Rs. 2, 000

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

Balance in Share Forefeture account                    =Rs5000 (already received) Amount adjusted towards share capital since shares are issued at Rs 70, Rs 80 paid up =Rs 1000 Amount of profit                                                           = rs (5000-1000)                                                                                        =Rs 4000  

Multiple choice

Debenture interest

  1. is payable only is case of profit

  2. accumulates in case of loss or inadequate profit

  3. is payable after the payment of preference dividend but before the payment of equity dividend

  4. is payable before the payment of any dividend on shares
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Debenture Interest is payable irrespective of the fact that the company makes profit or loss. It is like any other expense of the company which is to be paid before payment of preference as well as equity dividend.

Multiple choice

Which of the following can be utilised for redemption of preference shares?

  1. The proceeds of fresh issue of equity shares

  2. The proceeds of issue of debentures

  3. The proceeds of issue of fixed deposit

  4. The sale proceeds of investments
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

As per Section 55 of the Companies Act, 2013 Preference Shares can be redeemed out of fresh issue of equity shares or out of profits. However, where any such shares are redeemed, otherwise than out of the proceeds of a fresh issue, there shall, out of profits which would otherwise have been available for dividends, be transferred to Capital Redemption Reserve Account, a sum equal to the nominal amount of the shares redeemed.