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 mathematics and statistics banks and simple interest introduction to interests introduction to interest introduction to interest payments

A company pays a dividend of 15% on its ten-rupee shares from which it deducts income tax at the rate of 22%. Find the annual income of a man who owns one thousand shares of this company.

  1. 1170

  2. 1270

  3. 1070

  4. 1330
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation
Annual Income $=Rs.\ \dfrac{(10×1000×15)}{100}$
$=Rs.\ 1500$
Income tax deducted $= \dfrac{(22×1500)}{100}$
$=Rs.\ 330$
So, Total Income$=Rs.\ 1500 - 330$
$= Rs.\ 1170 .$
Multiple choice commercial studies company final accounts forms of statements of profit and loss operating profit (ebit) meaning, need and format of profit and loss account

Dividend received from shares entry is made in ______________.

  1. Trading account

  2. Profit and loss account

  3. Balance sheet

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

Dividends received represent non-operating income for a business. Such income is recorded in the profit and loss account as part of the total net profit calculation.

Multiple choice commercial studies company final accounts forms of statements of profit and loss operating profit (ebit) meaning, need and format of profit and loss account

According to the Companies Act, $2013$, a company may issue fully paid up bonus shares to its members, out of ___________.

  1. Free reserves

  2. Security premium account

  3. Capital redemption reserve account

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

Bonus shares are issued by the company to the existing shareholders when the company is having short of cash but the shareholders are expecting a regular income. Issue of bonus shares does not involve any cash outflow.

The Companies Act 2013 has specifically introduced section 63 to deal with bonus shares. The company can issue fully paid bonus shares from the following sources:
Free reserves of the company
  • Share premium account
  • Capital redemption reserve account

Multiple choice commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

The current ratio of a company is 2: 1 which of the following suggestions would Improve, reduce and net change it. I. Payment to trade creditors II. Sell machinery for cash Ill. Purchased goods for cash IV. Issue of equity shares ________________________.

  1. Decrease, Increase, Increase, No effect

  2. No effect, Increase, Decrease, Increase

  3. Increases, Increase, No effect, Increase

  4. Increase, No effect, Decrease, Increase
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Current ratio = Current Assets / Current Liabilities. (I) Payment to creditors reduces both by same amount, increasing ratio. (II) Selling machinery for cash increases current assets, increasing ratio. (III) Purchasing goods for cash has no effect on total current assets. (IV) Issuing equity shares increases cash, increasing ratio.

Multiple choice commercial applications bases of accounting cash and mercantile system basis of accounting basis of accounting system

Consider the following statements:
1. The bonus shares shall not be issued in lieu of dividend,
2. A company may issue fully paid up bonus shares to its members out of its 'Capital Redemption Reserve Account'
3. A company may not issue bonus shares out of its 'Securities Premium Account'
Which of the above statement/s is are not correct?

  1. 1,2, and 3

  2. Only 1

  3. Only 2

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

Bonus shares can be issued out of the Securities Premium Account as per the Companies Act. Therefore, statement 3 is incorrect, making it the correct answer to the question asking which is not correct.

Multiple choice business organisation and correspondence companies act, 2013 - introduction and characteristics introduction to companies companies act, 2013 company

As per the Rule 8 of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, every listed company and every other public company having a paid-up share capital of ______or more shall have whole-time key managerial personnel.

  1. Rs. 5 Crore

  2. Rs. 8 Crore

  3. Rs. 2 Crore

  4. Rs. 10 Crore
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Rule 8 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 mandates that every listed company and every other public company having a paid-up share capital of Rs. 10 Crore or more must appoint whole-time key managerial personnel.

Multiple choice business organisation and correspondence companies act, 2013 - introduction and characteristics introduction to companies companies act, 2013 company

Preference shares are those which carry the preferential rights as to____.

  1. The payment of dividend at a fixed rate

  2. The return of capital on winding up of the company

  3. Both (A) & (B)

  4. Either (A) or (B)
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Preference shares carry preferential rights regarding both the payment of a fixed dividend and the repayment of capital in the event of the company being wound up.

Multiple choice business organisation and correspondence companies act, 2013 - introduction and characteristics introduction to companies companies act, 2013 company

Statement A: A company dies with the death of its shareholders.
Statement B: In the case of a private company, every member owing fully paid up shares can freely transfer shares held by him.
Select the correct the answer from the options given below:

  1. Statement A is correct but Statement B is incorrect

  2. Statement B is correct but Statement A is incorrect

  3. Statement A is correct and Statement B is correct explanation of Statement A

  4. Statement A and Statement B both are incorrect
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

A company has perpetual succession, meaning it does not die with its shareholders. Furthermore, private companies have restrictions on the transfer of shares, so they are not freely transferable.

Multiple choice

Earnings distributed to stockholders are called

  1. Income statement

  2. Capital stock

  3. Retained earnings

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

Dividends are the distribution of a portion of a company's earnings to its shareholders, as decided by the board of directors.

Multiple choice book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

State, with reasons, whether the following statement is True of False
No dividend can be declared without making provisions for reserve and depreciation.

  1. True

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

Reasons: 
(1) Dividend is the return on share capital from the distributable profits of the company. 
(2) Based on the rate of proposed dividend company is required to transfer a certain percentage to reserves as specified. 
(3) E.g. Dividend of more than 20% of paid up capital entails a minimum of 10% of net profits to be transferred to reserves. 
(4) Company may decide to transfer more than the stipulated rates voluntarily. 
(5) Also, depreciation has to be provided for / from current / previous years profits. 
These provisions help the company to become financially sound and solid. 

Multiple choice book keeping and accountancy reserve and fund accounting treatment for depreciation meaning and characteristics of provisions provision for depreciation account

Provision is created for ________.

  1. known liabilities

  2. unknown liabilities

  3. strengthening financial position

  4. distribution of dividend
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

b"A provision is an amount set aside from a company's profit to cover an expected liability  or a decrease in the value of an asset,even though the specific amount might be unknown. A provision  is not a form of saving: instead, it is a recognition of an upcoming liability."

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) discount/loss on issue of debenture written off issue of debentures procedure for issue of debentures

Consider the following statements-Current ratio is increased by

    1. issue of redeemable preference shares.
    2. selling of old furniture for cash.
    3. cash realized from debtors.
    Which of the statements given ab

    1. 1 and 2 only

    2. 2 and 3 only

    3. 1 and 3 only

    4. 1, 2 and 3
    Reveal answer Fill a bubble to check yourself
    A Correct answer
    Explanation

    Current ratio is Current Assets / Current Liabilities. Issuing preference shares increases cash (asset), and selling furniture for cash increases cash (asset), both improving the ratio. Cash from debtors is just an exchange of one current asset for another, leaving the ratio unchanged.

    Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) discount/loss on issue of debenture written off issue of debentures procedure for issue of debentures

    Debenture interest -

    1. is payable only is case of profits

    2. accumulates in case of losses or inadequate profits

    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 a fixed charge against profits, meaning it must be paid regardless of whether the company makes a profit or loss, and it takes precedence over dividend payments.

    Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) discount/loss on issue of debenture written off issue of debentures procedure for issue of debentures

    On $15$th June, $1988$ a company had $5,000$ $10\%$ Redeemable Preference Shares of Rs. $10$ each which were issued on $1$st April, $1980$ with a redemption period of $20$ years. These shares will be redeemed ____________.

    1. before $15$th June, $1998$
    2. before $15$th June, $1993$
    3. before $1$st April, $1990$
    4. before $1$st April, $2008$
    Reveal answer Fill a bubble to check yourself
    B Correct answer