Accounting for share Capital Test

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Accounting for share Capital Test - 40

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Question 1
1 / -0

Securities premium amount cannot be used for:

A
writing off preliminary expenses

B
writing off discount on issue of shares

C
paying dividend

D
Both (a) and (b)

Solution

According to Section 52 of the Act, securities premium can be used for the following purposes:
1. For the issue of fully paid bonus share capital
2. For meeting the preliminary expenses incurred by the company
3. For meeting the expenses, commission or discount incurred concerning securities previously issued by the company
4. For ensuring the availability of the premium on the redemption of redeemable debentures or preference share capital of the company
5. For funding a scheme or buy-back of securities which is conducted in compliance with the provisions of Section 68 of the Companies Act
Therefore, C is the correct answer.
Question 2
1 / -0

Which of the following conditions must be fulfilled to issue the shares at discount?

A
Issue of shares at a discount must be authorized by an ordinary resolution of the company

B
Issue most be sanctioned by the Company Law Board

C
One year must have passed since the date on which the company was allowed to commerce business

D
All of the above
Question 3
1 / -0

Premium on issue of shares can be used for __________.

A
Distributing profits

B
Issue of bonus shares

C
Paying the amount to directors

D
Transfer to dividend equalization fund

Solution

The funds in the share premium account cannot be distributed as dividends and may only be used for purposes outlined in the company's bylaws or other governing documents. Often, the share premium can be used to pay the expenses of issuing equity, such as underwriter fees or for issuing bonus shares to shareholders.
Question 4
1 / -0

On a share of $$Rs. 20$$ issued at a premium of $$Rs. 4$$ on which $$Rs. 16$$ (including premium) has been called up and $$Rs. 10$$ (including premium) paid is forfeited, the share capital account should be debited by ____________.

A
$$Rs. 20$$

B
$$Rs. 12$$

C
$$Rs. 10$$

D
$$Rs. 24$$

Solution

A share is forfeited when the shareholder fails to pay the subscription money called upon by the issuing company. In such a case, the share capital account is debited by the amount of called up out of the face value of a share. Here, the amount called up excluding premium is Rs. 12 (16 – 4).
Question 5
1 / -0

ABC Ltd. forfeited $$20$$ shares of $$Rs. 10$$ each, $$Rs. 7$$ called up on which application money of $$Rs. 5$$ per share was paid. The entry for forfeiture is __________.

A
Share capital A/c Dr. $$Rs. 100$$

To Share forfeiture A/c $$Rs. 100$$

B
Share Capital A/c Dr. $$Rs. 100$$

To Share Application A/c $$Rs. 100$$

C
Share capital A/c Dr. $$Rs. 140$$

To Share forfeiture A/c $$Rs. 100$$

To Share allotment A/c $$Rs. 40$$

D
Share capital A/c Dr. $$Rs. 140$$

To Share allotment A/c $$Rs. 140$$
Question 6
1 / -0

There are 30,000 preference shares of Rs. 10 each fully called up. But there are calls-in-arrears of Rs. 2,000 @ Rs. 2 per share. Company can redeem:

A
30,000 shares

B
29,000 shares

C
28,000 shares

D
Shares cannot be redeemed.
Question 7
1 / -0

Redeemable preference shares of Rs 2,00,000 are redeemed at par for which purpose fresh equity shares are issued for Rs 80,000 at par. The amount to be transferred to Capital Redemption Reserve Account would be:

A
Rs 80,000

B
Rs 1,20,000

C
Rs 2,00,000

D
Rs 40,000
Question 8
1 / -0

A company cannot issue redeemable preference share for a period exceeding___________.

A
6 years

B
7 years

C
8 years

D
20 years
Question 9
1 / -0

At the time of forfeiture of shares the share capital account is __________.

A
debited with called-up amount of the forfeited shares

B
debited with face value of the shares

C
credited with the called-up amount of the shares

D
credited with the face value of the shares

Solution

Share Capital Account represents the liability of the company as it is the amount that is borrowed from the public. Therefore, at the time of forfeiture of shares, it is debited with a called-up amount.
Therefore, A is the correct option.
Question 10
1 / -0

_____ refers to that part of the issued capital which has actually been subscribed by the public.

A
Called up capital

B
Subscribed capital

C
Issued capital

D
Nominal or authorized capital

Solution

When a company prepares to "go public" by issuing stock for the first time, investors can submit an application expressing their desire to participate. Subscribed share capital refers to the monetary value of all the shares for which investors have expressed an interest. When a company issues a part of its authorized share capital, investors may or may not subscribe for all of its shares. Thus, the part of issued share capital which has been subscribed by investors is known as subscribed share capital

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Accounting for share Capital Test - 40

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Question 1

writing off preliminary expenses

writing off discount on issue of shares

paying dividend

Both (a) and (b)

Solution

Question 2

Issue of shares at a discount must be authorized by an ordinary resolution of the company

Issue most be sanctioned by the Company Law Board

One year must have passed since the date on which the company was allowed to commerce business

All of the above

Question 3

Distributing profits

Issue of bonus shares

Paying the amount to directors

Transfer to dividend equalization fund

Solution

Question 4

$$Rs. 20$$

$$Rs. 12$$

$$Rs. 10$$

$$Rs. 24$$

Solution

Question 5

Share capital A/c Dr. $$Rs. 100$$To Share forfeiture A/c $$Rs. 100$$

Share Capital A/c Dr. $$Rs. 100$$To Share Application A/c $$Rs. 100$$

Share capital A/c Dr. $$Rs. 140$$To Share forfeiture A/c $$Rs. 100$$To Share allotment A/c $$Rs. 40$$

Share capital A/c Dr. $$Rs. 140$$To Share allotment A/c $$Rs. 140$$

Question 6

30,000 shares

29,000 shares

28,000 shares

Shares cannot be redeemed.

Question 7

Rs 80,000

Rs 1,20,000

Rs 2,00,000

Rs 40,000

Question 8

6 years

7 years

8 years

20 years

Question 9

debited with called-up amount of the forfeited shares

debited with face value of the shares

credited with the called-up amount of the shares

credited with the face value of the shares

Solution

Question 10

Called up capital

Subscribed capital

Issued capital

Nominal or authorized capital

Solution

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Share capital A/c Dr. $$Rs. 100$$

To Share forfeiture A/c $$Rs. 100$$

Share Capital A/c Dr. $$Rs. 100$$

To Share Application A/c $$Rs. 100$$

Share capital A/c Dr. $$Rs. 140$$

To Share forfeiture A/c $$Rs. 100$$

To Share allotment A/c $$Rs. 40$$

Share capital A/c Dr. $$Rs. 140$$

To Share allotment A/c $$Rs. 140$$