Accounting for share Capital Test - 59

Redeemable preference shares of a company can be redeemed out of profits of a company which would otherwise be available for dividend or out of the proceeds of a fresh issue of shares made for the purpose of redemption.

Bonus shares are issued when the company has sufficient cash to pay the shareholders with their regular dividends. The shareholders can sell these shares and meet their cash needs. Firstly the company uses its reserves to pay off the dividend and the reserve balance can be calculated as under:

Forfeiture amount per share is the amount to be received by the company on forfeiture of each share.

$Forfeiture\quad Amount=Application\quad Amount+Allotment\quad Amount$

Substitute the values in above equation

$Forfeiture\quad Amount=Rs8$

Forfeiture amount is the money received by company on forfeiture (cancellation of share) or on the reissue of share.

$Forfeiture\quad Amount= No.\quad of\quad shares \times Forfeiture\quad Amount$ 

Substitute the values in the above equation

$Forfeiture\quad Amount=100shares \times  Rs8= Rs800$

$Forfeiture\quad amount\quad on\quad reissue=100shares \times Rs1=Rs100$

 Profit on the reissue is the profit earned by the company when the forfeited shares are reissued and transferred to capital reserve account

$Profit\quad on\quad reissue=Forfeited\quad Amount\quad on\quad forfeiture+Forfeited\quad Amount \quad on \quad reissue$

Substitute the values in the above equation

$Profit\quad on\quad reissue= Rs800-Rs100= Rs700$

Hence,  the amount credited to capital reserve accountis Rs $700$.

The company debits a certain amount to the share capital at the time of forfeiture of shares which is always the called up value. And the called up value is that amount which any company demands from its shareholders periodically every year.

Debenture is an acknowledgement of debt under common seal of a company.

Dividend is the distribution of profit to its shareholders. It is paid on the subscribed capital which is paid.
Therefore, C is the correct option.

Owner's equity at the beginning= ending balance of owner's equity - net income + withdrawal amount - contributed amount = 21000-800+4000-6000 = 11000.

When shares are issued at its nominal value, then the shares are issued at par. When the shares are issued more than nominal value, then the shares are issued at premium. The difference between face value and nominal value is called premium.

Before the inauguration of a company, the most important document to be registered is Memorandum of Association which highlights the information regarding the policies, strategies, and securities issued by them. It is must for every company to register its Memorandum of Association as it is the base of any company since it defines every small detail about the company along with the company's beliefs and motives which are to be clarified before the company is incorporated. 

A company issues a fair amount of share capital from the authorized share capital. The share capital registered by the company can only be reduced when there is a situation of capitalization and this reduction is only possible when the court has issued orders to do so.