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

A Joint Stock Company issued 20,000 Equity Shares of Rs. 10 each. Amount due on these shares was as under: Rs. 2 on Application (1st January) Rs. 3 on Allotment (1st February) Rs. 3 on First Call (1st July) Rs. 2 on Final Call (1st Nov) Ajit paid full amount on 1,000 shares upto Final Call along with First Call. Vijay paid First Call and Final Call money along with Allotment on 500 shares. According to rules, 6% interest is payable on amount received in advance.

What is the value of interest payable to Ajit on Call-in-Advance?

  1. Rs. 40

  2. Rs. 38

  3. Rs. 45

  4. Rs. 123
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

 Interest payable on Ajit's Shares is Rs. 40 & calculated as follows: Advance Amount: Rs. 2,000 (1,000 shares x Rs. 2 of Final Call) Rate of Interest @ 6% Period: 1st July to 1st Nov = 4 months (2,000) x 6% x 4/12 = Rs. 40

Multiple choice

A Company issued 20,000 6% Redeemable Preference Shares of Rs. 100 each (fully paid-up). These shares are redeemable @ 10% Premium on 31st Dec 2010. A provision of Rs. 40,000 is made every year out of divisible profits for redemption of these shares. Which of the following is wrongly passed?

  1. Profit and Loss Appropriation A/c Rs. 40,000 To Capital Reserve A/c Rs. 40,000

  2. 6% Redeemable Preference Shares A/c 20,00,000 Premium on Redemption of Shares A/c Rs. 2,00,000 To 6% Redeemable Preference Shareholders A/c 22,00,000

  3. Profit and Loss Appropriation A/c Rs. 2,00,000 To Premium on Redemption of Shares A/c Rs. 2,00,000

  4. 6% Redeemable Preference Shareholders A/c 22,00,000 To Bank Rs, 22,00,000
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

 The correct entry is: Profit and Loss Appropriation A/c Rs. 40,000 To Capital Redemption Reserve A/c Rs. 40,000

Multiple choice

Section 80 of The Companies Act lays down the following conditions for the redemption of preference shares:

  1. Preference Shares must be fully paid.
  2. Redeemable preference shares can be redeemed only out of divisible profits.
  3. Premium on Redemption of shares be written off through profits or/and Securities Premium of the Company.
  4. The amount of Securities Premium cannot be utilized for the payment of the nominal value of shares. Which of the above conditions is incorrect?

  1. Only 1

  2. Only 2

  3. Only 3

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

Redeemable preference shares can be redeemed only out of divisible profits or/and out of the proceeds of fresh issue of shares.

Multiple choice

20,000 10% Redeemable Preference Shares of Rs. 100 each fully paid in SR Ltd. are outstanding. These shares are redeemed at Rs. 110 each & 1,000 Equity Shares of Rs. 100 each are issued at Rs. 120 for cash for the redemption. The balance of Profit and Loss Appropriation A/c is Rs. 12,00,000. What is the amount of Profits utilized to write off Premium on Redemption of 10% Redeemable Preference Shares A/c?

  1. Rs. 2,00,000

  2. Rs. 1,80,000

  3. Rs. 20,000

  4. Rs. 12,00,000
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Premium of Rs. 2,00,000 payable on redemption & Rs. 20,000 Premium received after fresh issue of shares & Premium of Rs. 2,00,000 payable on redemption to be write off as below: Premium payable on redemption is Rs. 2,00,000 - Premium received on fresh issue of shares Rs. 20,000 = 1,80,000 & this amount write off out of Profits.

Multiple choice

10,000 7% Redeemable Preference Shares of Rs. 10 each fully paid in XYZ Ltd. are outstanding. These shares are redeemed at Rs. 11 each & 1,000 Equity Shares of Rs. 100 each are issued at Rs. 115 for cash for the redemption.

How to write off the Premium on Redemption of 7% Redeemable Preference Shares?

  1. Premium on Redemption of 7% Redeemable Preference Shares A/c 10,000 To 7% Redeemable Preference Shares A/c 10,000

  2. Bank A/c Rs. 10,000 To Premium on Redemption of 7% Redeemable Preference Shares A/c 10,000

  3. Securities Shares A/c Rs. 10,000 To Premium on Redemption of 7% Redeemable Preference Shares A/c 10,000

  4. Profit and Loss Appropriation Rs. 10,000 To Premium on Redemption of 7% Redeemable Preference Shares A/c 10,000
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

 If shares are redeemable at a premium then such a premium must be provided for out of the Company's Securities Shares A/c.

Multiple choice

The following balances in the books of RS Ltd.: 10% Redeemable Preference Share Capital Rs. 4,00,000 General Reserve Rs. 75,000 Securities Premium Rs. 30,000 Profit and Loss (Cr.) Rs. 60,000 Dividend Equalization Fund Rs. 40,000 Workmen Compensation Fund Rs. 25,000 The redemption was carried out on due date, assume that the Company raised necessary bank loan.

Calculate the amount transferred to Capital Redemption Reserve.

  1. Rs. 2,00,000

  2. Rs. 2,30,000

  3. Rs. 1,35,000

  4. Rs. 1,75,000
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Amount utilized for redemption is calculated as below: General Reserve Rs. 75,000 + Profit and Loss (Cr.) Rs. 60,000 + Dividend Equalization Fund Rs. 40,000 + Workmen Compensation Fund Rs. 25,000 = 2,00,000

Multiple choice

Which share capital refers to the part of the called-up capital, which has been paid by the shareholders?

  1. Authorised

  2. Issued

  3. Paid up

  4. Called up
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The authorised share capital is the maximum capital that a company can raise during its lifetime. Issued share capital is that capital which is offered to the public. Called up capital is that part of issued share capital which is called up by the company and paid up share capital is that part of called up capital which is paid by the equity shareholders.

Multiple choice

Dividends are usually paid as a percentage of

  1. authorised share capital

  2. net profit

  3. paid - up capital

  4. called - up capital
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

 The Net profit after tax is distributed among shareholders as dividends in their shareholding ratio. Dividends are distributed as a percentage of paid up share capital. 

Multiple choice

R. Ltd. reissued 2, 000 shares, which were forfeited by crediting Share forfeiture account by Rs. 3, 000. These shares were reissued at Rs. 9 per share. The amount to be transferred to capital reserve account will be

  1. Rs. 3, 000

  2. Rs. 2, 000

  3. Rs. 1, 000

  4. nil
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

 Assuming face value of shares =Rs 10 per share Since the shares are re-issued at Rs 9 per share Amount to be transferred to Share Capital Account out of Share Forefeiture A/c = Rs 1*2000 shares= Rs 2000 Balance amount remaing in Share forefeiture account is to be transferred to Capital reserve accounti.e Rs (3000-2000)=Rs 1000

Multiple choice

R Ltd. issued 60, 000 shares of Rs. 10 each at a discount of Re. 1 per share. The application money was Rs. 2, allotment money was Rs. 4 and first call was of Re. 1. The amount of final call will be

  1. Rs. 3

  2. Rs. 2

  3. Rs. 1

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

 Amount payable on application  = Rs 2 Amount payable on allotment       =Rs 4 Amount payable on 1st Call         =Re1 Total                                                   =Rs 7 Amount payable on 2nd Call        = Rs (10-1-7)                                                             =Rs 2

Multiple choice

A company issued 15, 000, 9% preference shares of Rs. 100 each at 5% discount and 2, 00, 000 equity shares of Rs. 10 each at 10% premium. Full amount was received from the applications in one installment. The net balance of securities premium account will be

  1. Rs. 75, 000

  2. Rs. 1, 25, 000

  3. Rs. 2, 00, 000

  4. cannot be determined
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

 According to Section 52 of the Companies Act,2013 Share premium can be used to write off any discount allowed on the issue of securities or debentures.Share premium                                                =Rs 2,00,000 Discount on issue of preference shares     =Rs(5%of 15,00,000)                                                                             =Rs 75000 Net Balance in Securities Premium A/c       =Rs (2,00,000-75000)                                                                             =Rs 125,000  

Multiple choice

R 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 Rs. 100 each. All amounts were received in full. The payment was made in full. The amount to be transferred to CRR a/c is

  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

Preference shares can to be redeemed from the fresh issue of equity share or from divisible profits. Where divisible profits are used for the redemtion of debentures, same amount should be transferred to CRR a/c. Preoceeds of fresh issue of debentures cannot be used for the redemption of preference shares.Amount of Preference Shares                                =Rs 3,00,000 Amount of fresh proceeds of equity shares          =Rs 2,50,000 Amount to be transferred to CRR                           =Rs (3,00,000-2,50,00)                                                                                       =Rs 50,000