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

A Ltd. issued 3,000 equity shares of Rs. 10 each at a discount of 10%. On these shares, payments are to be made as follows: Rs. 2 on application, Rs.3 on allotment and Rs. 5 on first and final calls. Anil, who is a holder of 800 shares has not paid the first and final call, hence, his share have been forfeited and have been reissued at a discount of 10%. What is the amount of Forfeited Shares A/c transferred to Capital Reserve A/c after re-issue of forfeited shares?

  1. Rs. 4,000

  2. Rs. 800

  3. Rs. 2,400

  4. Rs. 3,200
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The amount of Forfeited Shares A/c is transferred to Capital Reserve after re-issue of shares, i.e. 4,000 - 800 = 3,200.

Multiple choice

A company issued 1,000 equity shares of Rs.10 each at a discount 10%. The final call of Rs.3 was not paid by 'Z' who holds 100 shares and his shares were forfeited. Half of the forfeited shares were reissued at Rs.8 per share fully paid.

What amount of Forfeited Shares A/c remains after the re-issue of shares?

  1. Rs. 600

  2. Rs. 250

  3. Rs. 300

  4. Rs. 50
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Forfeited Shares A/c charged Rs. 600 at the time of forfeiture & half amount remains left & shown in the Forfeited Shares A/c.

Multiple choice

A company issued 100 equity shares of Rs.100 each at a discount of 10% to Raj. Raj failed to pay first call of Rs. 20 and second & final calls of Rs. 30 per share. As such, Raj's shares were forfeited. Which is the correct journal entry for forfeiture of shares?

  1. Equity Share Capital A/c 9,000 To Share First Call A/c 2,000 To Share Second and Final Call A/c Rs. 3,000 To Forfeited Share A/c 4,000

  2. Equity Share Capital A/c 10,000 To Discount on Issue of Share A/c 1,000 To Share First Call A/c 2,000 To Share Second and Final Call A/c Rs. 3,000

    To Forfeited Share A/c 4,000

  3. Equity Share Capital A/c 10,000 To Share First Call A/c 2,000 To Share Second and Final Call A/c Rs. 3,000 To Forfeited Share A/c 5,000

  4. Equity Share Capital A/c 9,000 To Discount on Issue of Share A/c 1,000 To Share First Call A/c 2,000 To Share Second and Final Call A/c Rs. 3,000 To Forfeited Share A/c 3,000
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Forfeited shares are those which were originally issued at discount, then discount relating to such forfeited shares must be written off. The relevant portion of discount on issue of shares should be credited.

Multiple choice

Which of the following statements is correct about the issue of shares at discount?

  1. A resolution in regard to issue of shares at discount must be passed in Board Meeting.

  2. The resolution must specify the maximum rate of discount not more than 7.5%.

  3. The period of the issue of shares at discount should not be less than two years from the date of commencement of business.

  4. The shares must be issued within 2 months of Court's permission.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The shares must be issued within 2 months of Court's permission.

Multiple choice

A Company has already issued 30,000 5% Redeemable Preference Shares of Rs. 100 each on which Rs. 80 per share has been received. The Company wants to redeem these shares at a premium of 5%. The company has sufficient profits for distribution, but to increase liquid assets, it issues the following:

  1. 10,000 Equity Shares of Rs. 100 each at a Premium of 10%.
  2. 10,000 5% debentures of Rs. 100 each. The above scheme was executed and full amount is received.

Which of the following is incorrect?

  1. Redeemable Preference Shares are redeemable only when they are fully paid up.

  2. The amount payable on redemption is Rs. 31,50,000.

  3. Principal amount of Rs. 30 lacs is to be returned whereas Rs. 10 lacs have been received from the issue of fresh Equity Shares & Rs.10 lacs have been received on 5% Debentures. Therefore, the balance of Rs.10 lacs shall be paid out of Profits.

  4. Share Premium of Rs. 1,50,000 has to be paid on redemption. This shall be paid as Rs. 1,00,000 out of the Premium received from issue of fresh Equity Shares and the balance of Rs. 50,000 from Profits.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Principal amount of Rs. 30 lacs is to be returned whereas Rs. 10 lacs have been received from the issue of fresh Equity Shares Therefore the balance of Rs. 20 lacs shall be paid out of Profits. The sum of Rs. 10 lacs received on 5% Debentures cannot be utilized for the payment of Preference Shares.

Multiple choice

Z Limited made the following issue of shares : (i) To a vender who supplied machinery costing Rs.4, 40,000, 4000 Equity shares of Rs.100 each at a premium of 10%, (ii) 1000, 10% Preference shares of Rs.500 each at a premium of 5%, and (iii) 2000 Equity shares of Rs. 100 each at discount of 5%. (iv) 500 Equity shares of Rs. 100 each at par to the promoters.

Which one of the following entries about issue of shares is correctly recorded?

  1. Entry for point (i): Vender's Personal A/c Rs. 4, 40,000 To Equity Share Capital A/c Rs. 4, 40,000

  2. Entry for point (ii): Bank A/c 5, 25,000 To 10% Preference Share Capital A/c Rs. 5, 25,000

  3. Entry for point (iii): Bank A/c 1,90,000 To Equity Share Capital A/c Rs. 1,90,000

  4. Goodwill A/c Rs. 50,000 To Equity Share Capital A/c Rs. 50,000
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

When shares issued to the promoters then the amount of shares issued is recorded through Goodwill A/c.

Multiple choice

XYZ Ltd. forfeits 1000 shares of Rs. 10 each on which a shareholder has paid only Rs. 2 on application but failed to pay Rs. 3 on allotment and Rs. 3 on first and final calls. Which is the correct entry for forfeiture?

  1. Share Capital A/c - 10,000 To Share Allotment A/c - 3,000 To Share First and Final Call A/c - 5,000 To Share Application - Rs. 2,000

  2. Share Capital A/c - 2,000 To Forfeited Share A/c - 2,000

  3. Share Capital A/c 10,000 To Share Allotment A/c - 3,000 To Share First and Final Call A/c - 5,000 To Forfeited Share A/c - 2,000

  4. Share Capital A/c 8,000 To Share Allotment A/c 3,000

    To Share First and Final Call A/c - 5,000
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Forfeiture of 10,000 shares for non-payment of allotment and call money & unpaid amount credited through Forfeited Share A/c.

Multiple choice

Tata Limited issued a prospectus offering 20,000 shares of Rs. 10 each at a par payable as follow: On application and allotment Rs. 2; on first call Rs. 4 and on final call Rs. 4. Sumesh, the holder of 1000 equity shares did not pay the amount due on both the calls. These 1000 shares were forfeited by the Board of Directors and these 1000 shares were subsequently reissued at Rs. 9 per share. Which is incorrect entry related to forfeiture and re-issue?

  1. Share Capital A/c 10,000 To Share First Call A/c 4,000 To Share Final Call A/c Rs. 4,000 To Forfeited Share A/c 2,000

  2. Bank A/c Rs. 9,000 Forfeited Share A/c 1,000 To Share Capital A/c Rs.10,000

  3. Forfeited Share A/c Rs.2,000 To Capital Reserve A/c 2,000

  4. Share Application and Allotment A/c 2,000 To Forfeited Share A/c 2,000
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

 The amount paid on forfeited shares simply transferred to Forfeited Share A/c but no need to debit Share Application and Allotment A/c.

Multiple choice

The Directors of Chirag Ltd. resolved that 2,000 equity shares of Rs. 10 each, Rs.7 paid be forfeited for non-payment of final call of Rs. 3. 1,000 of these shares were re-issued for Rs. 6 per share. After recording of above entries, following information comes out:

  1. Rs. 14,000 charged to Forfeited Shares A/c at the time of forfeiture.

  2. Rs. 4,000 charged to Forfeited Shares A/c at the time of re-issue.

  3. Rs. 3,000 of Forfeited Shares A/c transferred to Capital Reserve A/c.

  4. Rs. 6,000 of Forfeited Shares A/c remains after re-issue & shown in the liability side of the Balance Sheet. Which of the above information is wrong?

  1. Only 1

  2. Only 2

  3. Only 3

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

Number of forfeited shares: 2,000 & Number of re-issued shares: 1,000. The number of forfeited shares remains after re-issue 1,000 (2,000 - 1,000) & the amount remains Rs. 7,000 (1000 x 7). Rs. 7,000 of Forfeited Shares A/c remains after re-issue and shown in the liability side of the Balance Sheet.

Multiple choice

The following balances in the books of ABC Ltd: 10% Redeemable Preference Share Capital Rs. 4,00,000 General Reserve Rs. 90,000 Securities Premium Rs. 20,000 Profit and Loss (Cr.) Rs. 48,000 The Company redeems 6% Redeemable Preference Shares by issue of Equity Shares of Rs. 10 each. Fresh issue of shares is made in lots of 100 shares. Calculate the number of fresh shares to be issued.

  1. 40,000

  2. 26,200

  3. 24,200

  4. 35,200
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

 Nominal value of 6% Redeemable Preference Shares Rs. 4,00,000 Redemption out of Profits: P/L Balance Rs. 48000 + General Reserve Rs. 90,000 = 1,38,000 The balance by fresh issue: 4,00,000 - 1,38,000 = 2,62,000 Face Value of fresh Equity Share: Rs. 10 No. of shares to be issued: 2,62,000 / 10 = 26,200

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.