Accounting for share Capital Test

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Accounting for share Capital Test - 26

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Question 1
1 / -0

Shares in Sharma Ltd. was acquired by Mr. B at a cost of Rs. 50,000. During the current p.y. he got right to acquire fresh shares. On the date of receiving the right entitlement intimation fair market value of existing shares held by Mr. B was Rs. 60,000. Mr. B sold the right paper for Rs. 75,000. His capital gains liability would be

A
Rs. 10,000

B
Rs. 15,000

C
Rs. 25,000

D
Rs. 75,000
Question 2
1 / -0

When company issues shares to vendors of assets for a consideration other than cash such shares are issued:

A
At par

B
At a discount

C
At a premium

D
Any of the above
Question 3
1 / -0

On a share of Rs. 10 on which Rs 8 has been called up but Rs. 5 has been paid forfeited. The share capital account should be debited by:

A
Rs. 5

B
Rs. 8

C
Rs. 10

D
None of the above

Solution

The company debits the Share Capital Account with the amount called-up up to the date of forfeiture on shares. It credits the Shares Allotment Amount or Shares Call Account with the amount called up on forfeited shares but due from the shareholders. In this case, since the called up amount is Rs. 8, then the share capital will be debited with Rs. 8.
Question 4
1 / -0

When shares are forfeited the share capital account is debited with the:

A
Nominal value of shares

B
Paid up value of shares

C
Called up value of share

D
None of the above

Solution

The company debits the Share Capital Account with the amount called-up up to the date of forfeiture on shares. It credits the Shares Allotment Amount or Shares Call Account with the amount called up on forfeited shares but due from the shareholders.
Question 5
1 / -0

When the amount of 'Calls-in-advance' is received, the accounting entry will be made is:

A
Calls -in- advance A/c Dr.
To Relevant Call A/c

B
Calls -in- advance A/c Dr.
To Bank Call A/c

C
Bank A/c Dr.
To calls - in - advance A/c

D
None of the above
Question 6
1 / -0

The balance of the share forfeiture account after the reissue of forfeited shares is transferred to __________________.

A
Capital redemption reserve account

B
Capital reserve account

C
General reserve account

D
Profit and loss account
Question 7
1 / -0

In the above question assuming the forfeited shares were subsequently reissued as fully paid @ Rs.7 each. What is the entry for reissue of forfeited shares?

A

B

C

D
Question 8
1 / -0

When shares are issued at discount, the amount of discount is debited to _______, which is in the nature of capital loss for the company.

A
Discount on issue of shares account

B
Securities discount account

C
Share forfeiture account

D
Securities premium account

Solution

When shares are issued at a discount, the amount of such discount is debited to 'Discount on Issue of Shares Account', which is the nature of a capital loss for the company. For example, when a share of the nominal value of Rs.100 is issued at Rs.98, it is said to have been issued at a discount of Rs.2.
Question 9
1 / -0

In a share of Rs. 50, on which Rs.30 has been paid, is forfeited, it can be re-issued at the minimum price of ________________.

A
Rs.30 per share

B
Rs.20 per share

C
Rs.50 per share

D
Rs.40 per share

Solution

Reissue of share is merely a sale of Forfeited Shares and not an allotment of shares. The forfeited shares can be reissued as per the provisions of Articles of the company.
The Re-issue price of forfeited shares must be at least equal to the difference between the paid up value of Re-issued Shares and the Amount Forfeited on Re-issue Shares. In other words, Re-issue price must not be less than the amount unpaid on Forfeited Shares.
Therefore, difference between paid up value of reissued shares and amount forfeited = Rs. 50 - 30 = Rs. 20
Therefore, B is the correct option.
Question 10
1 / -0

The Shekhawati Ltd. currently has sales of Rs. 30 Lakh with an average period of 2 months. At present, no discount are offered to the customers. The M. D. of the company is thinking to allow a discount of $2\%$ on cash sales which results in
(i) The average collection period would reduce to one month.
(ii) The company normally requires a $25\%$ return on its investment.
(iii) $50\%$ of customers would take advantage of $2\%$ discount.
In the above changed situation,the net increase in profit of the company will be ___________.

A
Rs.30,000

B
Rs.62,500

C
Rs.32,500

D
Rs.72,500

Solution

Calculation on net increase in Profit
Discount to be offered = Rs. 30,000 [30,00,000 X $\frac{50}{100}$ X $\frac{2}{100}$ ]
Increase in profit due to decrease in debtors
= Rs.62,500[ $\frac{2,50,500 X 25}{100}$ ]
Net increase in profit = Rs.32,500[62,500-30,000]
Note : reduction in investment in debtors balance is calculate as under :
Current debtors = Rs. 5,00,000[30,00,000 X $\frac{2}{12}$ ]
Revised debtors = Rs. 2,50,000[30,00,000 X $\frac{2}{12}$ ]
Reduction in debtors = Rs. 2,50,000