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

If an investor fails to claim the redemption proceeds after 3 years of due date, he has the right to receive an amount equal to

  1. prevailing NAV

  2. face value of the unit

  3. due date NAV plus interest @15% p.a.

  4. NAV at the end of three years after the due date
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

As per SEBI regulations, if an investor fails to claim redemption proceeds within 3 years from the due date, they are entitled to receive the NAV prevailing at the end of the three-year period. This protects investors from losing unclaimed amounts while accounting for market movements over time.

Multiple choice

What is an equity warrant?

  1. It is nothing but an equity share of a company.

  2. It is a debit instrument that offers fixed interest rate.

  3. It is an instrument that gives the holder the right to purchase equity shares in a company at a fixed price in future.

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

Equity warrant is an instrument that gives the holder the right to purchase equity shares in a company at a fixed price in future. 

Multiple choice

Which of the following SEBI restrictions applies to a scheme's investment in unlisted shares?

  1. A close ended scheme may invest a maximum of 10% of its NAV in unlisted shares

  2. An open-end scheme may invest a maximum of 5% of its NAV in unlisted shares

  3. Both (1) and (2)

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

SEBI regulations restrict investments in unlisted shares to limit liquidity and valuation risks. Close-ended schemes may invest up to 10% of their NAV in unlisted shares, while open-ended schemes face a stricter 5% limit. These different limits reflect the redemption pressure that open-ended funds face versus the locked-in capital of close-ended schemes.

Multiple choice

A unit holder purchased 200 units of a mutual fund at NAV of Rs.12, each. There was no entry load. The fund purchased securities worth Rs.2400 using this money. After one year the fund had 20,000 units. The value of unit holder's holdings in the mutual fund would be

  1. Rs. 2400

  2. 1% of the value of fund's portfolio at the time

  3. 1% of the net assets of the fund at that time

  4. Cannot say with the given data
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

When you buy mutual fund units, you own a percentage of the total fund proportional to your investment. You invested Rs.2,400 out of what became a Rs.2,40,000 fund (20,000 units × Rs.12 NAV = Rs.2,40,000). Your 200 units represent exactly 1% of the total 20,000 units (200/20,000 = 1%). Therefore, your holding value is 1% of the fund's net assets at that time - option C is correct. Option A would only be true if NAV remained exactly Rs.12, which is not guaranteed. Option B is meaningless without specifying time. The data is sufficient for calculation.

Multiple choice

M Ltd. holds 35% nominal value of paid-up capital in O Ltd. N Ltd. is also holding 30% paid-up capital in O Ltd. M Ltd. holds 80% of paid-up capital in N Ltd. What is the relationship between M Ltd. and O Ltd.?

  1. M Ltd. is investor, and O Ltd. is associate company of M Ltd.

  2. M Ltd. is holding company, and O Ltd. is subsidiary of M Ltd.

  3. M Ltd. is co-venturer, and O Ltd. is joint venture of M Ltd.

  4. No relationship between M Ltd. and O Ltd

  5. None of these
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

As per section 4 of Companies Act, 1956, the company jointly under the control of two companies is subsidiary company of parent company that is a subsidiary company of main parent company. M Ltd. is the parent company in this case. M Ltd. and O Ltd. is holding subsidiary relationship between each other. The correct option is (2). This is not a joint venture because O Ltd. is not under the joint control of M Ltd. and N Ltd.

Multiple choice

As per the new guidelines issued by SEBI, companies are required to list shares within how many days of the closure of the Initial Public Offers (IPOs)?

  1. 60 days

  2. 12 days

  3. 30 days

  4. 45 days

  5. None of these
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

SEBI (Securities and Exchange Board of India) guidelines require companies to list their shares within 30 days of the closure of IPOs. This T+30 timeline was introduced to ensure quicker trading availability for investors. Earlier norms allowed longer periods (60+ days). 12 days would be too short, and 45 days exceeds the regulatory requirement.

Multiple choice

XYZ company holds 50% of voting securities of ABC company. XYZ is

  1. a subsidiary company

  2. a holding company

  3. an associated company

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

A company may become a holding company by acquiring 50% voting stock in another company to exercise control of its operations. Thus, XYZ is a holding company. 

Multiple choice

Redeemable capital shares

  1. are based on interest

  2. are not based on interest

  3. are ordinary shares

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

Redeemable capital shares include finance obtained on the basis of any security or obligation not based on interest, other than an ordinary share of a company.

Multiple choice

ABC Ltd. issued 40,000 shares of Rs. 10 each to the public payable Rs. 2 on application, Rs. 4 on allotments and Rs. 4 on first call. Applications were received for 50,000 shares. Applications for 5,000 are rejected and application money is returned. Surplus of application money on 5,000 shares is utilized for allotment.

Which is the correct entry for the utilization of excess application money?

  1. Share Application A/c

    To Bank

  2. Share Allotment A/c To Share Capital A/c

  3. Share Application A/c To Share Allotment A/c

  4. Share Capital A/c To Share Application A/c
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The excess money on application is utilized for allotment & Share Application A/c is debited while Share Allotment A/c is credited.

Multiple choice

Which of the following is the wrong statement?

  1. Articles of Association mention the rate of interest on call-in-advance.

  2. Articles of Association mention the rate of interest on call-in-arrears.

  3. Rules of forfeiture are mentioned in Articles of Association.

  4. Articles of Association empowers the shareholders to accept surrender of shares.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Articles of Association empowers the directors to accept surrender of shares.

Multiple choice

All forfeited shares were re-issued @ Rs. 100 each. Which of the following journal entries relating to forfeiture & re-issue is correct?

  1. Forfeiture of Kapil's Shares:

    Equity Shares Capital A/c Rs. 27,000 To Equity Shares Allotment A/c Rs. 12,000 To Equity Shares First Call A/c Rs. 6,000 To Forfeited Shares A/c Rs. 9,000

  2. Forfeiture of Shivam's Shares:

    Equity Shares Capital A/c Rs. 40,000 To Equity Shares First Call A/c Rs. 8,000 To Forfeited Shares A/c Rs. 32,000

  3. Forfeiture of Vishal's Shares:

    Equity Shares Capital A/c Rs. 22,000 To Equity Shares Second and Final Call A/c Rs. 2,000 To Forfeited Shares A/c Rs. 20,000

  4. Entry of re-issue: Bank A/c Rs. 90,000 To Share Capital A/c Rs. 90,000
Reveal answer Fill a bubble to check yourself
D Correct answer
Multiple choice

Amit Ltd. issued 6,000 equity shares of Rs. 10 each, payable as Re. 1 on application, Rs. 3 on allotment, Rs. 2 on first call and the balance on final call. But Ajay, who holds 300 equity shares, did not pay first and final call amount on these shares and Vijay, who holds 100 shares did not pay final call amount. All other amounts were duly received. Which entry related to calls is wrongly recorded in the books of company?

  1. Equity Share First Call A/c 12,000 To Equity Share Capital A/c 12,000

  2. Bank A/c 11,400 To Equity Share First Call A/c 11,400

  3. Equity Share Final Call A/c 22,800 To Equity Share Capital A/c 22,800

  4. Bank A/c 22,400 To Equity Share Final Call A/c 22,400
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Final call money due on 6,000 equity shares @ Rs. 4 per share, i.e. 24,000 but here amount is wrongly calculated i.e. 6,000 - 300 = 5,700 x 4 = 22,800.