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

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

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.