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Accounting for share Capital Test - 60

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Accounting for share Capital Test - 60
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  • Question 1
    1 / -0
    Shares on which the company has called the entire nominal value and has also received it, is shown in the Notes to Accounts on share capital under subscribed capital as ________________.
    Solution
    Shares on which the company has called the entire nominal value and has also received it is shown in the notes to accounts on share capital under subscribed capital as subscribed and fully paid up. 
    Subscribed capital is that part of issued capital that the public has agreed to purchase by paying the application money on the same. Subscribed and fully paid is receiving all the  call money on the subscribed share capital. 
  • Question 2
    1 / -0
    Shares on which the final call is not received are shown in the Notes to Accounts on share capital under subscribed capital as ________________.
    Solution
    Shares on which final call is not received are shown in notes to accounts on share capital under subscribed and not fully paid. When money on calls is not received it is called as calls in arrears. They are shown under the head subscribed and not fully paid as these shares are subscribed by the shareholder and the full money on the same isn't yet received.
  • Question 3
    1 / -0
    Pro-rata allotment of shares means allotment of shares ________________.
    Solution
    Pro-rata allotment is a situation due to the over-subscription of shares. In this situation the company either refunds excess shares or adjust excess shares for future and refunds the left ones.
    The shares allotted to the public are done in proportion to the number of shares applied by the people. The proportion in which the applied shares will be allotted is decided by the company as per its need. If the company wants more off equity it will allot more shares to public but when the company plays safe with less of equity it will allot fewer shares to the public.
     If the total applied shares are 1000 shares and total allotted shares are 500 shares, then the shares allotted to the public will be half of their applied shares. Now, the shareholders will get half of the shares applied or subscribed by them in the company.
  • Question 4
    1 / -0
    Deepthi, a shareholder holding 800800 shares of Rs.1010 each, did not pay the allotment money of Rs. 44 per share (including a premium of Rs. 22) and the first and final call of Rs. 33. Her shares were forfeited after the first and final call. Give journal entry for forfeiture of the shares.
    Solution
    When shares which have been issued at premium are forfeited, we first find out the amount by which share capital A/c has been credited in respect of such forfeited shares and debit the share capital with such amount.
    In this case, the share capital A/ c must have been credited by 800 x 10 =8,000 as the shares are forfeited after the first and final call, which means that the entry for making due the amount to be received was passed by the whole amount (i.e. the share capital A/c had been credited with the amount due at the time of application + allotment + first and final call). Similarly, the share premium A/c will be debited by the amount it was credited earlier, 800 x 2 =1,600. And, share allotment A/c will be credited by the amount it was debited earlier with respect to allotment including premium (800 x 4 = 3,200) and first and final call (800 x 3 = 2,400) and share forfeiture A/c will be credited with the amount of share application money (800 x 5 = 4,000).
    Therefore, the entry will be:
    Share Capital A/c            8,000
    Securities Premium A/c   1,600
      To Share Allotment A/c        3,200
      To Share First call A/c        2,400
      To Share Forfeiture A/c       4,000
  • Question 5
    1 / -0
    Journalise the given transaction in the books of Indian Oil Ltd, if 400400 shares of Rs.5050 each issued at par were forfeited for non-payment of final call of Rs.1010 per share. These shares were reissued at Rs. 4545 per share fully paid-up. Record the the journal entry for transferring the balance in forfeiture amount to capital reserve.
    Solution
    • When shares which have been issued at par are forfeited, the entry will be:
    Share Capital A/c  Dr. (400 x 50)           20,000
              To Share Allotment A/c (400 x 10)       4,000
              To Share Forfeiture A/c  (400 x 40)     16,000
    • When these shares are issued at Rs. 45 as fully paid up, the entry will be:
    Bank A/c  Dr.  (400 x 45)                       18,000
    Share Forfeiture A/c Dr. (400 x 5)          2,000
           To Share Capital A/c (400 x 50)            20,000
    • So, the entry for recording the transferring of balance in forfeiture A/c to the capital reserve will be:
    Share Forfeiture A/c Dr.  (16,000 - 2,000)    14,000
              To Capital Reserve                                    14,000
  • Question 6
    1 / -0
    A bearer of a share warrant of a company is____________.
    Solution
    The bearer of share warrant is not a member of the company. It is a negotiable instrument issued by the company under common seal, stating that its bearer is entitled to the shares specified therein.
  • Question 7
    1 / -0
    Unpaid calls are shown in the balance sheet of a company _______________.
    Solution
    All the items relating to share capital are to be adjusted under the head share capital only. Unpaid calls are shown in balance sheet of the company by deducting the same from called up capital as it is not yet paid and is yet to be received. 
  • Question 8
    1 / -0
    Consider the following steps in the process of allotment of shares.
    1. Issue of prospectus
    2. Appointment of manager to the issue
    3. Receipt of application money
    4. Listing in a stock exchange 
    5. Minimum subscription
    The correct chronological sequence of these steps is :
    Solution
    Share are allotted to shareholders after a series of few steps:
    2. The first step is to appoint a manager for the purpose of issue of shares. The manager holds the responsibility to carry out the process and maintain a fluency within the firm.
    1. Then comes the issue of a prospectus which denotes the information about securities issued and various other legal information about the company like its investors' information along with its way to cycle the money in business. 
    3. After it, the application money is received by the company from the public. Generally, the money received on the application is much more than the money considered by the company.
    5. Then the minimum subscription is disclosed which tells the minimum shares to be applied by the public. As per SEBI guidelines, a minimum of 90% of issued shares must be subscribed by the public.
    4. At last, the allotted securities are listed under a stock exchange. The company's name is registered in the stock market along with the price of securities issued by them.
    Hence, the chronological order to be maintained while issuing shares is 2,1,3,5,42,1,3,5,4.
  • Question 9
    1 / -0
    Profit prior to incorporation is an example of ___________.
    Solution

    Profit prior to incorporation is the profit earned during the period before the incorporation of a company. It is a capital profit/reserve which is not available for distribution as dividend to the shareholders because a company cannot earn a profit before it comes into existence.

  • Question 10
    1 / -0
    Bonus Shares are issued by the companies because :
    Solution
    When the companies have sufficient reserve, which it does not need in future apply such reserves for the issue of bonus shares to its shareholders. Bonus issue increases the issued share capital of the company thus making the company attractive to investors.
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