Accountancy Test - 5

The correct answer is Charge against profit

Key PointsDebentures:

• A debenture is a medium- to long-term loan instrument used by large firms to borrow money at a fixed rate of interest.
•  A debenture is thus like a certificate of loan or a loan bond, evidencing the company's liability to pay a specified amount with interest.
• Debenture holders do not have voting rights at the company's general meetings of shareholders, but they may convene separate meetings or votes, such as on amendments to the debentures' rights.
• In the company's financial statements, the interest paid to them is a charge against profit.

Important Points Difference Between Charge Against profit and Appropriation out of profit:

The correct answer is general reserve.

Sinking fund: 

• A sinking fund may be defined as a fund, created by a charge against or an appropriation of profits represented by specific investments, which is brought into existence for a specific purpose, such as replacement of an asset at the expiration of its life or the redemption of debentures.
• A sinking fund is a fund containing money set aside or saved to pay off a debt or bond.
• A company that issues debt will need to pay that debt off in the future, and the sinking fund helps to soften the hardship of a large outlay of revenue.
• A sinking fund is established so the company can contribute to the fund in the years leading up to the bond's maturity.

1. The balance of the Debentures Sinking Fund after redemption of debentures is transferred to the General Reserve account.
2. It is the amount which is kept separately out of redeemed amount from debentures, that is why it is transferred to the general reserve account.

Therefore, where all the debentures are redeemed, the balance left in the debenture sinking fund account is transferable to the General Reserve account. 

1. Debenture: In corporate finance, a debenture is a medium- to long-term debt instrument used by large companies to borrow money, at a fixed rate of interest.
2. Capital redemption reserve account is a type of reserve maintained by a company limited by shares and as the name suggests this reserve deals with shares that are redeemable.

Key Points

• When Assets are Purchased

• When Business is Purchased

• At Par 

• At Premium 

The correct answer is ₹3,00,000

Important Points Solution:

Amount received on Application = Number of Shares Subscribed x Amount Per share on Application

Amount received on Application = 50,000 x 2 = ₹ 1,00,000

Amount received on Allotment = Number of Shares Subscribed x Amount Per share on Allotment

Amount received on Allotment = 50,000 x 7 = ₹ 3,50,000

 Amount Per share on First and Final Call = 10 + 5 - 2 - 7 = 6

Amount received on First and Final Call = Number of Shares Subscribed x Amount Per share on First and Final Call

Amount received on First and Final Call = 50,000 x  6 = ₹ 3,00,000

Hence, total amount received on first and final call by the company is ₹ 3,00,000

Key Points

• Where the total number of shares for which applications are received is less than the number of shares issued, it is a case of under subscription.
• If the actual applications received are more than the shares offered to the public it is a case of oversubscription.
• In the case of under subscription as the applications received are less than those required for minimum subscription, the company cannot proceed with allotment. The entire application money has to be refunded.
• If the subscription for shares is more than what is offered to the public the Board of Directors may make allotment in full to the required number of applicants and reject the other applications.
• Alternatively, they may allot shares proportionately to the applications received to all applicants which are known as pro-rata allotment.
• It is possible that they may resort to selective partial allotment by which the pro-rata allotment may be different for various ranges of share applications received. 

The correct answer is 2,800

Key Points Calls-in-arrears:

• "Calls-in-arrears" refers to an amount that has been called in respect of a share, but has not been paid before or on the specified date set for payment.
• The term "call in arrears" refers to any default in payment on a specified date.

Important Points Calculation of calls-in-arrears

For X holding 500 shares

X has not paid the first call and final call amount

Therefore,

 Call is arrears = (Number of shares held by X) x (Per share first call rate + Per share final call rate)

 Call is arrears = 500 x (2 + 2) = Rs. 2000

For Y holding 400 shares

Y has not paid only final call amount

Therefore,

 Call is arrears = (Number of shares held by Y) x (Per share final call rate)

 Call is arrears = 400 x 2 = Rs. 800

Total Amount of calls in arrears = 2000 + 800 = 2800.

Additional Information Journal entry for call money in arrears

  Calls-in-Arrear A/c                 Dr.

           To Relevant Call A/c

(Being recording of the calls in arrears)

The correct answer is forfeited shares A/c. 

Key Points

• When a shareholder defaults in making payment of allotment and/or call money, the shares may be forfeited.
•  On forfeiture, the share allotment is cancelled and to that extent, share capital is reduced. 
• The person ceases to be a shareholder of the company after the shares are forfeited.
• On forfeiture, the amount so far paid by the shareholder is forfeited which is a gain to the company and is credited to forfeited shares account. 
• Forfeited shares account is shown under share capital as a separate head in the Note to Accounts to the balance sheet.

Important Points

Journal for forfeiture of shares: 
Equity share capital A/c (called up amount) Dr. 
              To Equity share allotment A/c (amount unpaid) 
              To Equity share call A/c (amount unpaid) 
              To Forfeited shares A/c (amount so far paid)

The correct answer is 300 shares; Rs. 240

Key Points

• E Ltd. had allotted 10,000 shares to the application of 14,000 shares, this is the case of Over Subscription of Shares
• In this Case, the excess money received on Application is used towards the allotment money

Important Points Solution

Calculation of Shares allotted to F

 The number of shares allotted to F can be Calculated by using unitary method

 The number of shares allotted to F = (10000 x 420) / 14000 

  The number of shares allotted to F = 300 shares

Calculation of Amount of excess money received on
Share application from F transferred to Share Allotment Account

Hence, The correct answer is 300 shares; Rs. 240

The correct answer is ALONG WITH ANYONE OF THE ABOVE.

When a company issues shares at a premium, an amount of premium may be received by the company along with any of the following:

• Application Money: The amount of shares to be paid by intending shareholders (who apply for the share). It becomes a part of share capital.
• Allotment Money: It is the second instalment of share money called by the company at the time of allotment.
• Calls Money: It is the amount of money being called up by the company after allotment is made.

Key Points

• Company: It is an organization formed by an association of persons through a process of law for undertaking (usually) a business venture.
• Share: It is the capital of a company that is divided into units of small denominations.
• Share Premium: It is the amount received on the issued share more than the face value.
• Allotment: It means acceptance of share application.
• Share Capital: It refers to the amount that a company can raise or has raised by the issue of shares.

The correct answer is Miscellaneous expenditure

Key Points Loss on issue of Debentures: The difference between the Redeemable Value and the Issued Value is referred to as "loss on issue of debentures."

Discount on issue of debentures is a capital loss to be written off over a period of time depending upon the terms of issue, before the redemption of such debentures.

Important Points It is deducted from the "Loss on Issue of Debentures Account" as a Miscellaneous expenditure.