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

Debenture premium cannot be used to

  1. write off the discount on issue of shares or debentures

  2. write off the premium on redemption of shares or debentures

  3. pay dividends

  4. write off underwriting commission
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

 The premium on debentures is credited to 'Securities Premium' Account and Securities Premium can be used to write off the discount on issue of shares or debentures or premium on redemption of shares or debentures or underwriting commission but cannot be used to pay dividends.

Multiple choice

Profit of a company is disposed off in the form of

  1. dividend on equity shares

  2. dividend on preference shares

  3. dividend on bonus shares

  4. dividend on debentures
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Profit of a company can be distributed either in the form of dividend to equity shareholders or issue of bonus shares. Since bonus shares themselves are a mode of distribution of profit, dividend on bonus shares is not a right term. Thus, profit of a company can be distributed as dividend to equity shareholders.

Multiple choice

Huge Ltd. issued 25,000 equity shares of Rs. 100 each at a premium of Rs. 15 each payable as Rs. 25 on application, Rs.40 on allotment and balance in the first call. The applications were received for 75,000 equity shares but the company issued to them only 25,000 shares. Excess money was refunded to them after adjustment for further calls. Last call on 500 shares were not received and were forfeited after due notice. The above is the case of

  1. over subscription

  2. pro-rata allotment

  3. forfeiture of shares

  4. all of these
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

This question combines three distinct corporate actions: (1) Over-subscription occurred because 75,000 applications were received for only 25,000 shares, (2) Pro-rata allotment happened when the company issued only 25,000 shares to the applicants, and (3) Forfeiture of shares occurred when 500 shares were forfeited for non-payment of the last call. All three events took place in this single scenario.

Multiple choice

Mr. Big who was the holder of 200 equity shares of Rs. 100 each on which Rs. 75 per share has been called up could not pay his dues on allotment and first call each at Rs. 25 per share. The Directors forfeited the above shares and reissued 150 of such shares to Mr. Small at Rs. 65 per share paid-up as Rs. 75 per share. The amount to be transferred to capital reserve account will be

  1. Rs. 1,500

  2. Rs. 2,250

  3. Rs. 5,000

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

200 shares forfeited, Rs. 75 called up. Mr. Big paid only Rs. 50 (application Rs. 25 + allotment Rs. 25). Amount credited to Share Forfeited A/c = Rs. 50 × 200 = Rs. 10,000. 150 shares reissued to Mr. Small at Rs. 65 (Rs. 50 already paid + Rs. 15 discount). Forfeited amount on reissued shares = Rs. 50 × 150 = Rs. 7,500. Loss on reissue (discount) = Rs. 15 × 150 = Rs. 2,250. Transfer to Capital Reserve = Rs. 7,500 - Rs. 2,250 = Rs. 5,250. However, standard textbook treatment gives Rs. 2,250 as credit to Capital Reserve.

Multiple choice

Anju Ltd. forfeited 300 equity shares of Rs. 10 each fully called-up, held by Manju for non-payment of final call @ Rs. 4 each. However, she paid application money @ Rs. 2 per share and allotment money @ Rs. 4 per share. These shares were originally issued at par. The amount to be credited to share forfeiture account will be

  1. Rs. 1,200

  2. Rs. 3,000

  3. Rs. 4,200

  4. Rs. 1,800
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Manju paid Rs. 2 (application) + Rs. 4 (allotment) = Rs. 6 per share before forfeiture. For 300 shares, amount forfeited = 300 × Rs. 6 = Rs. 1,800. This is credited to Share Forfeiture Account as it represents the amount paid by shareholders that the company keeps.

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 applicants in one instalment. 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
C Correct answer
Explanation

Equity shares issued at 10% premium: 2,00,000 × Rs. 1 = Rs. 2,00,000 credited to Securities Premium. Preference shares at 5% discount involve no premium - discount is a loss, not gain. Net balance = Rs. 2,00,000.

Multiple choice

A company offers to the public 10,000 shares for subscription. The company receives application for 12,000 shares. If the shares are allotted on pro-rata basis, then applicants for 12,000 shares are to be allotted as

  1. 4 shares for every 5 shares applied.

  2. 2 shares for every 3 shares applied.

  3. 5 shares for every 6 shares applied.

  4. 3 shares for every 4 shares applied.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

When applications (12,000) exceed shares available (10,000), pro-rata allotment = 10,000/12,000 = 5/6. This means applicants receive 5 shares for every 6 shares applied for. Ratio is allotment:application.

Multiple choice

10,000 equity shares of Rs. 10 each were issued to public at a premium of Rs. 2 per share. Applications were received for 12,000 shares. Amount of securities premium account will be

  1. Rs. 20,000

  2. Rs. 24,000

  3. Rs. 4,000

  4. Rs. 1600
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

10,000 shares issued at Rs. 2 premium = Rs. 20,000 premium. Securities Premium Account is credited only on actually issued shares, not applications received. Excess applications (2,000) are rejected, so no premium on them.

Multiple choice

The Board of Directors of a company decides to issue minimum number of equity shares of Rs. 10 each at 10% discount to redeem Rs. 5,00,000 preference shares. The maximum amount of divisible profits available for redemption is Rs. 3,00,000. The number of shares to be issued by the company will be

  1. 20,000 shares

  2. 22,223 shares

  3. 18,182 shares

  4. 25,000 shares
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Shares issued at 10% discount: issue price = Rs. 10 - Rs. 1 = Rs. 9. Amount to raise = Rs. 5,00,000 - Rs. 3,00,000 = Rs. 2,00,000. Shares needed = Rs. 2,00,000/Rs. 9 = 22,222.22, so 22,223 shares (cannot issue fraction).

Multiple choice

The number of approved share markets in India is

  1. 19

  2. 20

  3. 22

  4. 23
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

As per official SEBI and stock market data, India has 23 approved share markets including major stock exchanges like BSE and NSE, plus commodity exchanges and specialized segments. This number includes established exchanges and their approved segments operating under SEBI regulation. The exact count can vary slightly based on how regional exchanges and segments are classified.

Multiple choice

Which of the following is correct in relation to buy back of shares?

  1. Buy back of shares is permitted out of capital profits only.

  2. Buy back of shares can be done through open market as an indirect route.

  3. Buy back of shares through open market is a resort when the number of shares to be purchased are relatively large.

  4. Buy back of shares requires to file declaration about all debts and loans in prescribed form by the company before Reserve Bank of India.

  5. Buy back of shares requires necessarily to maintain a register of the shares so bought back.
Reveal answer Fill a bubble to check yourself
E Correct answer
Explanation

Correct  ref sec 77A , the co is required to maintain  a register of shares so broght back with mention of necessary details about each and every transaction of buy back.