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All questions of Accounting for Share Capital for Commerce Exam

The following information pertains to X Ltd.:
(i) Equity Share capital called up Rs. 5,00,000 
(ii) Calls in arrear Rs. 40,000
(iii) Call in advance Rs. 25,000
(iv) Proposed dividend 15%
The amount of dividend payable is: 
  • a) Rs. 75,000
  • b) Rs. 72,750
  • c) Rs. 71,250
  • d) Rs. 69,000
Correct answer is option `D`. Can you explain this answer?

Freedom Institute answered
Dividend is payable at the end of the financial year upon such share which money is made. Calls in advance means the amount which is received in advance before the amount is due from shareholders and calls in arrears means which money that is not given by public to company earlier and is due. To calculate  the dividend payable we have to subtract calls in arrear from Share capital so, Rs 5,00,000 - Rs 40,000 =4,60,000. 15 % is the proposed dividend, hence, amount of dividend payable is Rs 69,000
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Can you explain the answer of this question below:

ABC Ltd. forfeited 20 shares of Rs. 10 each, Rs. 8 called up, on which X paid application and allotment money of Rs. 2 and Rs. 3 respectively. These shares were re-issued to Y at Rs. 6 fully paid. What was the balance in share forfeiture account before shares were re-issued?

  • A: Rs. 40
  • B: Rs. 60
  • C: Rs. 100
  • D: Rs. 160

The answer is c.

Divey Sethi answered
Shares forfeiture account contains the balance of money paid on the shares forfeited.
► Number of shares = 20
► Money paid on shares = 2+3 = 5
► Money unpaid on shares = (8-5) = 3
► Balance in shares forfeiture account before shares were re-issued = 20*5 = 100

A company can sell its shares only through___
  • a)
    Only Newspapers
  • b)
    Stock Exchange
  • c)
    Media
  • d)
    Banks
Correct answer is option 'B'. Can you explain this answer?

Infinity Academy answered
A company can sell its shares only through stock exchange. Company should be listed in the stock exchange to sell its shares.

Equity – Rs. 90,000, Liability – Rs. 60,000 Profit of the year – Rs. 20,000, Find Total Assets
  • a)
    Rs. 170,000
  • b)
    Rs. 150,000
  • c)
    Rs. 110,000 
  • d)
    Rs. 80,000
Correct answer is option 'A'. Can you explain this answer?

Freedom Institute answered
In the balance sheet Total Assets=Total Liabilities
Here, details of liability side is given to us.
► Total Liabilities= equity+Liability+profit of the year
                         = 90,000+60,000+20,000
                         = 1,70,000

D Ltd. issued 2,00,000 shares of Rs.100 each at a premium of Rs.20 per share payable as follows :
On application Rs.20
On allotment Rs.50 (including premium)
On first call Rs.30
On second and final call Rs.20
Applications were received for 3,00,000 shares and pro rata allotment was made to applicants of 2,40,000 shares. Money excess received on application was employed on account of sum due on allotment as part of share capital. E, to whom 4,000 shares were allotted, failed to pay the allotment money and on his subsequent failure to pay the first call, his shares were forfeited and F, the holder of 6,000 shares failed to pay the two calls and his shares were forfeited after the second call. Of the forfeited shares, 8,000 shares were reissued to G at a discount of 10%, the whole of E’s forfeited shares being reissued.
 
Q.Application money adjusted against allotment = __________. a.
  • a)
    Rs 20,00,000
  • b)
    Rs 8,00,000
  • c)
    Rs 12,00,000
  • d)
    Rs 16,00,000
Correct answer is option 'B'. Can you explain this answer?

Srsps answered
Correct Answer :- B
Explanation : Total refund amount = (300000-240000) * 20 = 12,00,000
so , adjustment towards allotment (20,00,000 - 12,00,000) 
= 8,00,000.

When a company makes an offer or invites the public in general to subscribe its shares, it is known as _______
  • a)
    Issue of shares at par
  • b)
    Private Placement of shares
  • c)
    Issue of shares at premium
  • d)
    Initial Public Offer (IPO)
Correct answer is option 'D'. Can you explain this answer?

Nandini Iyer answered
A public company is a company that has permission to issue registered securities to the general public through an initial public offering (IPO) and it is traded on at least one stock exchange market.

 Share allotment account is a : 
  • a)
    Real account 
  • b)
    Nominal account 
  • c)
    Personal account 
  • d)
    Company account 
Correct answer is option 'C'. Can you explain this answer?

Gopal Sen answered
Explanation:

Personal account is a type of account that is used to keep the record of individuals, firms, and companies with whom we have some business transactions. Share allotment account is also a personal account as it maintains the record of the individuals or companies to whom shares are allotted.

Reasons why Share allotment account is a personal account:

1. Records transactions with individuals and companies: Share allotment account is used to record the transactions related to the allotment of shares to individuals and companies. Hence, it is a personal account.

2. Represents a person or entity: Share allotment account represents the person or entity to whom shares are allotted. Therefore, it is a personal account.

3. Maintains balance of transactions: Share allotment account maintains the balance of transactions related to the allotment of shares. This balance represents the amount of shares allotted to individuals and companies. Hence, it is a personal account.

Conclusion:

From the above discussion, it is clear that Share allotment account is a personal account. Therefore, it falls under the category of personal accounts in accounting.

When shares are issued to promoters which account should be debited: 
  • a)
    Share Capital A/c 
  • b)
    Assets A/c
  • c)
    Promoters A/c 
  • d)
    Goodwill A/c 
Correct answer is option 'D'. Can you explain this answer?

Kavita Joshi answered
 Goodwill A/C    DR

 to equity share capital A/C

Goodwill account is debited on the assumption that promoter’s function has resulted in forming the company into profitable unit.

The amount of capital that a company can issue at par value is called
  • a)
    Authorised capital
  • b)
    Share premium
  • c)
    Issued capital
  • d)
    Fixed capital
Correct answer is option 'A'. Can you explain this answer?

Poonam Reddy answered
The authorised capital of a company (sometimes referred to as the authorised share capital, registered capital or nominal capital, particularly in the United States) is the maximum amount of share capital that the company is authorised by its constitutional documents to issue (allocate) to shareholders.

G Ltd. acquired assets worth Rs. 75,000 from H Ltd. by issue of share of Rs. 10 at a premium of Rs. 5. The number of shares to be issued by G Ltd. to settle the purchase consideration: 
  • a)
    6,000 shares 
  • b)
    5,000 shares 
  • c)
    9,375 shares 
  • d)
    7,500 shares 
Correct answer is option 'D'. Can you explain this answer?

Aditi Joshi answered
The number of shares to be issued by G Ltd. to settle the purchase consideration is:
7,500 shares
This can be calculated by dividing the total purchase consideration (Rs. 75,000) by the value of each share (Rs. 10 + Rs. 5 premium = Rs. 15 per share). 75,000 / 15 = 5,000 shares
Option 4, 7,500 shares is the correct answer

If buy back is made from free resources then what should be created __________
  • a)
    Debenture Redemption Reserve 
  • b)
    Capital Redemption Reserve
  • c)
    Statutory liquid Ratio. 
  • d)
    None of the above
Correct answer is option 'B'. Can you explain this answer?

Arjun Singhania answered
When shares are redeemed or bought back, the company is required to either replenish the capital by issuing fresh shares in lieu of the redeemed or bought back shares or to transfer their funds to an account called the Capital Redemption Reserve (CRR).

A Company forfeited 2,000 shares of Rs. 10 each (which, were issued at par) held by A for non payment of allotment money of Rs. 4 per share. The called up value per share was Rs. 9. On forfeiture, the amount debited to share capital is: 
  • a)
    Rs. 10,000
  • b)
    Rs. 8,000
  • c)
    Rs. 2,000
  • d)
    Rs. 18,000
Correct answer is option 'D'. Can you explain this answer?

Srsps answered
In case of non- payment of any of the call money, the shares get forfeited. Later these shares can be sold at the called up value. 
On issue of forfeited shares, the share capital account is debited with the called up value i.e 18,000 (2000*9).

Which type of capital will take place after the authorized capital?
  • a)
    Issued Capital
  • b)
    Subscribed Capital
  • c)
    Called up Capital
  • d)
    Paid up Capital
Correct answer is option 'A'. Can you explain this answer?

Kavita Joshi answered
Issued Share Capital: Issued share capital is simply the monetary value of the shares of stock a company actually offers for sale to investors. The number of issued shares generally corresponds to the amount of subscribed share capital, though neither amount can exceed the authorized amount.

Reserve capital means: 
  • a)
    The part of subscribed uncalled capital 
  • b)
    Accumulated Profits 
  • c)
    The Part of Capital Reserve 
  • d)
    The part of Capital Redemption Reserve 
Correct answer is option 'A'. Can you explain this answer?

Nandini Iyer answered
“Capital Reserve” means the part of profit reserved by the company for a particular purpose such as to finance long-term projects or to write off capital expenses. If we reverse the words, then we get a new term “Reserve Capital”. The two terms might seem alike to a layman, but these are not one and the same thing, as they carry different meanings. Reserve Capital shows the part of the authorized capital that has not yet called up by the company and is available for drawing, if necessary.

While the creation of capital reserve is mandatory for all the companies, there is no such compulsion for maintaining reserve capital. In this article excerpt, we have compiled all the important differences between capital reserve and reserve capital. Have a look.

J Ltd. reissued 2,000 shares which were forfeited by crediting share forfeiture account by Rs. 3,000. These shares were reissued at Rs. 9 Per share. The amount transferred to Capital Reserve will be: 
  • a)
    Rs. 3,000
  • b)
    Rs. 2,000
  • c)
    Rs. 1,000
  • d)
    Nil 
Correct answer is 'C'. Can you explain this answer?

Geetika Basak answered
Bank A/c   Dr.(2000*9)    18,000
Share forfeiture A/c Dr.     2000
         To Share Capital A/c (2000*10)     20,000
(Being forfeited shares re-issued)
 
Share Forfeiture A/c Dr.  1000
     To Capital Reserve                 1000
(balance in share forfeiture account transferred to capital reserve)

According to Company Act, 1956, Balance sheet of a company is prepared as per
a)Part II and Schedule VI
b)Part I and II of Schedule VI
c)Part II of Schedule VII
d)Part I of Schedule VIICorrect answer is option 'B'. Can you explain this answer?

Kavita Joshi answered
The Ministry of Corporate Affairs (MCA) vide Notification No. S.O. 447(E) dated 28th February, 2011 have revised Schedule VI of the Companies Act, 1956 (The Act) which provides the instructions for the preparation of the Balance Sheet and Statement of the Profit & Loss of the Company. The purpose for revising the reporting format of the financial accounts of the Company was mainly to bring it in par with the International Financial Reporting Standards (IFRS).

ABC Ltd. forfeited 20 shares of Rs. 10 each, Rs. 8 called up, on which X paid application and allotment money of Rs. 2 and Rs. 3 respectively. These shares were re-issued to Y at Rs. 6 fully paid. What was the balance in share forfeiture account before shares were re-issued?
  • a)
    Rs. 40
  • b)
    Rs. 60
  • c)
    Rs. 100
  • d)
    Rs. 160
Correct answer is option 'C'. Can you explain this answer?

Srsps answered
Shares forfeiture account contains the balance of money paid on the shares forfeited.
► Number of shares = 20
► Money paid on shares = 2+3 = 5
► Money unpaid on shares = (8-5) = 3
► Balance in shares forfeiture account before shares were re-issued = 20*5 = 100

“Proposed dividends” is shown in the Balance sheet of a Company under the head: 
a)Provisions
b)Reserves and Surplus
c)Current Liabilities
d)Other Liabilities
Correct answer is option 'A'. Can you explain this answer?

Srsps answered
► Provision is defined as the amount set aside to meet the future liability.  provisions may be made for short term and long term liability. Short term provisions are those against which the liability is going to arise in next 12 months or so. 
► Proposed dividend is shown under the heading of provisions in the balance sheet in liability side. Other provisions may be, employee benefits, taxation etc.

Equity shareholders are ________of a company
  • a)
    Bankers 
  • b)
    Creditors
  • c)
    Debtors
  • d)
    Owners
Correct answer is option 'D'. Can you explain this answer?

Srsps answered
Equity shareholder give the money with risk as like normal owner of proprietor. For a  company, this money is working capital and company work with this on day to day business. So, this money is like a owner so equity shareholder are owner of the company 

If vendors are issued fully paid shares of Rs. 1,00,000 in consideration of net assets of Rs. 1,20,000, the balance of Rs. 20,000 will be credited to: 
  • a)
    Goodwill account 
  • b)
    Capital Reserve account 
  • c)
    Vendor’s account 
  • d)
    Profit and Loss account 
Correct answer is option 'B'. Can you explain this answer?

Srsps answered
The correct answer is Capital Reserve account.

Capital Reserve Account:
- Capital reserves are created from profits that are not intended for distribution as dividends to shareholders. They are created to strengthen the financial position of the company and to meet future contingencies or unforeseen situations.
- In this case, the company is receiving net assets of Rs. 1,20,000 in exchange for fully-paid shares of Rs. 1,00,000. This means that the company has gained Rs. 20,000 in value from the transaction.
- Since this gain is not a part of the company's normal operating activities, it cannot be credited to the Profit and Loss account. Similarly, it is not a payment made to the vendor, so it cannot be credited to the Vendor's account. And it doesn't represent the value of intangible assets like a company's reputation or brand, so it cannot be credited to the Goodwill account.
- Instead, the Rs. 20,000 gain is a capital reserve, which is created to strengthen the company's financial position. It can be used in the future for purposes such as expansion, payment of dividends, or to meet any other contingencies that may arise.

So, the balance of Rs. 20,000 will be credited to the Capital Reserve account.

 A purchased a Machinery for Rs. 1,80,000 for which he is paying shares of Rs. 100 each at 10% discount. How many shares will be give as consideration?
  • a)
    2500
  • b)
    2000
  • c)
    1800
  • d)
    3000
Correct answer is option 'B'. Can you explain this answer?

Saumya Khanna answered
Given:
Cost of Machinery = Rs. 1,80,000
Face Value of Share = Rs. 100
Discount = 10%

To find: Number of shares given as consideration

Solution:
Discount on the face value of the share = 10%
So, the amount paid per share = Face Value - Discount = Rs. 100 - Rs. 10 = Rs. 90

Number of shares required to pay Rs. 1,80,000 = Cost of Machinery / Amount paid per share
= Rs. 1,80,000 / Rs. 90
= 2000 shares

Therefore, the number of shares given as consideration is 2000.

Answer: Option B) 2000 shares.

______ Shares are not convertible.
  • a)
    Convertible Preference Shares
  • b)
    Equity Shares
  • c)
    Preference Shares
  • d)
    Both Preference Shares and Convertible Preference Shares
Correct answer is option 'B'. Can you explain this answer?

Priya Patel answered
Equity shares are also known as ordinary shares. They are the form of fractional or part ownership in which the shareholder, as a fractional owner, takes the maximum business risk. The holders of Equity shares are members of the company and have voting rights. Equity shares are the vital source for raising long-term capital.

Equity shares represent the ownership of a company and capital raised by the issue of such shares is known as ownership capital or owner’s funds. They are the foundation for the creation of a company. they are not convertible.

Mr. X, a holder of 10,000 shares for Rs. 10 each has paid Rs. 3 on application and Rs. 3 on allotment. He did not pay Rs. 2 on first call. His shares are forfeited subsequently after first call. Share capital will be debited by_______
  • a)
    Rs. 85,000
  • b)
    Rs. 1,00,000
  • c)
    Rs. 80,000
  • d)
    Rs. 60,000
Correct answer is option 'C'. Can you explain this answer?

Shanaya Dasgupta answered
Debit of Share Capital after forfeit

The share capital will be debited by the amount paid by the shareholder at the time of application and allotment, as well as the amount not paid by the shareholder on the first call.

Calculation:

Total amount paid by the shareholder = Rs. 3 (on application) + Rs. 3 (on allotment) = Rs. 6 per share

Total amount not paid by the shareholder on the first call = Rs. 2 per share

Number of shares held by the shareholder = 10,000

Total share capital = 10,000 shares x Rs. 10 per share = Rs. 1,00,000

Amount paid by the shareholder = 10,000 shares x Rs. 6 per share = Rs. 60,000

Amount not paid by the shareholder on the first call = 10,000 shares x Rs. 2 per share = Rs. 20,000

Therefore, the share capital after forfeiture will be debited by:

Rs. 60,000 (amount paid by the shareholder) + Rs. 20,000 (amount not paid by the shareholder on the first call) = Rs. 80,000

Hence, option 'C' is the correct answer.

D Ltd. issued 2,00,000 shares of Rs.100 each at a premium of Rs.20 per share payable as follows :
On application Rs.20
On allotment Rs.50 (including premium)
On first call Rs.30
On second and final call Rs.20
Applications were received for 3,00,000 shares and pro rata allotment was made to applicants of 2,40,000 shares. Money excess received on application was employed on account of sum due on allotment as part of share capital. E, to whom 4,000 shares were allotted, failed to pay the allotment money and on his subsequent failure to pay the first call, his shares were forfeited and F, the holder of 6,000 shares failed to pay the two calls and his shares were forfeited after the second call. Of the forfeited shares, 8,000 shares were reissued to G at a discount of 10%, the whole of E’s forfeited shares being reissued.
 
Q.Amount transferred to Share forfeiture account at the time of forfeiting F’s shares = _________.
  • a)
    Rs 80,000
  • b)
    Rs 3,00,000
  • c)
    Rs 4,20,000
  • d)
    Rs 1,44,000
Correct answer is option 'B'. Can you explain this answer?

Divey Sethi answered
Amount transferred to Share forfeiture account at the time of forfeiting F's shares = Rs 3,00,000.
Explanation:
To calculate the amount transferred to the Share forfeiture account, we need to consider the following steps:
1. Calculation of excess money received on application:
- Number of shares applied for = 3,00,000
- Number of shares allotted = 2,40,000
- Excess shares applied for = 3,00,000 - 2,40,000 = 60,000
- Excess money received on application = Excess shares applied for * Application money per share
= 60,000 * Rs 20 = Rs 12,00,000
2. Utilization of excess money received on application:
- The excess money received on application is used to adjust the sum due on allotment.
- The sum due on allotment per share is Rs 50 (including premium).
- Total sum due on allotment = Number of shares allotted * Sum due on allotment per share
= 2,40,000 * Rs 50 = Rs 1,20,00,000
- Excess money utilized = Minimum of (Excess money received on application, Total sum due on allotment)
= Minimum of (Rs 12,00,000, Rs 1,20,00,000) = Rs 12,00,000
3. Calculation of forfeiture amount:
- F failed to pay the two calls, which amounts to Rs 30 (first call) + Rs 20 (second call) = Rs 50 per share.
- Number of shares forfeited = F's shares = 6,000
- Forfeiture amount = Number of shares forfeited * Forfeiture amount per share
= 6,000 * Rs 50 = Rs 3,00,000
4. Calculation of reissued shares at a discount:
- E's shares were forfeited and reissued to G at a discount of 10%.
- Number of shares forfeited and reissued = E's shares = 4,000
- Discount on reissued shares = Discount rate * Face value per share
= 10% * Rs 100 = Rs 10 per share
- Reissued price per share = Face value per share - Discount on reissued shares
= Rs 100 - Rs 10 = Rs 90 per share
- Amount received from G for reissued shares = Number of reissued shares * Reissued price per share
= 4,000 * Rs 90 = Rs 3,60,000
5. Calculation of amount transferred to the Share forfeiture account:
- Amount transferred to the Share forfeiture account = Excess money utilized + Forfeiture amount
= Rs 12,00,000 + Rs 3,00,000 = Rs 15,00,000
Therefore, the amount transferred to the Share forfeiture account at the time of forfeiting F's shares is Rs 3,00,000.

Which of the following statements is false?
  • a)
    The forfeited shares should not be issued at a premium
  • b)
    At the time of forfeiture of shares, share premium should not be debited with the amount of premium already received
  • c)
    Shares can be issued at a discount only after one year from the commencement of business
  • d)
    Share premium cannot be utilized to redeem preference shares
Correct answer is option 'A'. Can you explain this answer?

Srsps answered
The correct option is A.
When the shares are forfeited the premium which has already been received cannot be debited as this amount has already been paid by shareholders and cannot be debited for the purpose of receiving the amount in future.
a newly opened business cannot issue shares at discount since it has no earnings as of now. If this happens, the company might be in loss and may lose the opportunity for goodwill.
Security premium is used by many companies to redeem their preference shares in case of shortage of funds.
Hence, the option A is false because forfeited shares can be reissued at premium if the company needs funds in its reserves.

10,000 equity shares of Rs. 10 each were issued to public at a premium of Rs. 2 per share. Application were received for 12,000 shares. Amount of securities premium account will be : 
  • a)
    Rs. 20,000
  • b)
    Rs. 24,000
  • c)
    Rs. 4,000
  • d)
    Rs. 1,600
Correct answer is option 'A'. Can you explain this answer?

Prashanth Datta answered
Calculation of securities premium account

Total number of shares issued = 10,000
Face value of each share = Rs. 10
Premium received per share = Rs. 2
Total amount received from public = (10,000 x 10) + (10,000 x 2) = Rs. 1,20,000
Total number of shares applied for = 12,000
Amount to be refunded = (12,000 - 10,000) x 10 = Rs. 20,000
Amount credited to securities premium account = Total amount received - Amount to be refunded
= Rs. 1,20,000 - Rs. 20,000
= Rs. 1,00,000

Therefore, the amount of securities premium account will be Rs. 20,000 (Option A).

The directors of a company forfeited 1000 shares of Rs. 10 each, Rs. 7.50 paid up, for non payment of final call money of Rs. 2.50 per share. 700 of these shares are re-issued @ Rs. 7/- per share. The amount transferred to capital reserve A/c would be: 
  • a) Rs. 2,500
  • b) Rs. 3,150
  • c) Rs. 3,500
  • d) Rs. 5,400
Correct answer is option `B`. Can you explain this answer?

Hrishikesh Pillai answered
(1) Share Capital A/c Dr. (1,000 x 10) 10,000
To Share forfeiture A.c (1,000 x 7.50) 7,500
To Calls in arrear A/c (1,000 x 2.50) 2,500
(2) Bank A/c ..Dr. (700 x 7) 4,900
Share forfeiture A/c Dr. (700 x 3) 2,100
To Share Capital A/c (700 x 10) 7,000
(3) Share forfeiture A/c Dr. 3,150
To Capital Reserve 3,150
(75,000 / 1,000 x 700 = 5,250 - 2,100)

The directors of B Ltd. made the final call of Rs.30 per share on January 15, 2004 indicating the last date of payment of call money to be January 31, 2004. Mr. C, holding 7,500 shares paid the call money on March 15, 2004.
If the company adopts Table A, of the Companies Act the amount of interest on calls-inarrear to be paid by Mr. C = ?
  • a)
     Rs.937.50
  • b)
     Rs.1,406.25
  • c)
     Rs.1,125.00
  • d)
     Rs.1,687.50.
Correct answer is option 'B'. Can you explain this answer?

Akshay Das answered
Calculation of Interest on Calls-in-arrear

Given information:

- Call amount per share = Rs. 30
- Mr. C holds 7,500 shares
- Call payment due date = January 31, 2004
- Mr. C paid call money on March 15, 2004
- Table A of the Companies Act is adopted

Calculation:

- Total call amount due = Rs. 30 x 7,500 = Rs. 2,25,000
- Call money paid within due date = Rs. 30 x 7,500 = Rs. 2,25,000
- Call money paid after due date = Rs. 30 x 7,500 = Rs. 2,25,000
- Calls-in-arrear = Rs. 2,25,000 - Rs. 2,25,000 = Rs. 0
- Interest on calls-in-arrear = Calls-in-arrear x 10% x (number of days delayed/365)

- Number of days delayed = March 15, 2004 - January 31, 2004 = 44 days

- Interest on calls-in-arrear = 0 x 10% x (44/365) = Rs. 0

Therefore, the amount of interest on calls-in-arrear to be paid by Mr. C is Rs. 0.

Note: As per Table A of the Companies Act, the company has the power to charge interest on calls-in-arrear at a rate not exceeding 10% per annum or at a rate fixed by the articles of association. In this case, since Mr. C paid the call money before any interest was due, no interest is payable.

If a company is not able to refund the excess amount of share within the reasonable time. The Company will give them Interest @: 
  • a)
    15%p.a.
  • b)
    5%p.a.
  • c)
    7% p.a. 
  • d)
    10% p.a. 
Correct answer is option 'A'. Can you explain this answer?

Mehul Ghoshal answered
The correct answer is option 'A' i.e. 15% p.a. Let's understand why.

Reason for Interest Payment
When a company issues shares, it mentions a face value of the share. Sometimes, investors end up paying more than the face value of the share. This excess amount paid is called "Excess Share Application Money". The company has to refund this excess amount to the investors. However, if the company is not able to refund this amount within a reasonable time, it has to pay interest on it.

Rate of Interest
As per Section 73 of the Companies Act, 2013, if a company fails to refund the excess share application money within 15 days from the date of allotment, it has to pay interest to the investor. The rate of interest is 15% per annum or such other rate as may be prescribed by the Central Government. Therefore, option 'A' is the correct answer.

Conclusion
In conclusion, if a company is unable to refund the excess amount of share within a reasonable time, it has to pay interest to the investors. As per the Companies Act, 2013, the rate of interest is 15% per annum or such other rate as may be prescribed by the Central Government.

The amount of capital that is mentioned in capital clause is know as: 
  • a)
    Authorised Capital 
  • b)
    Registered Capital 
  • c)
    Nominal Capital 
  • d)
    All of these 
Correct answer is option 'D'. Can you explain this answer?

Arka Kaur answered
The amount of capital with which a company is registered is called authorized/registered/nominal capital. This is the amount of capital which is mentioned in the capital clause of the memorandum of association.

Right shares are issued to :
  • a)
    Promoters for the services 
  • b)
    Holders of convertible debentures 
  • c)
    Existing shareholders 
  • d)
    All of the above
Correct answer is option 'C'. Can you explain this answer?

Shanaya Dasgupta answered
Issuance of Right Shares

Right shares are issued by a company to its existing shareholders. These shares give the shareholders the right to purchase additional shares in the company at a discounted price. The issuance of right shares is a way for companies to raise capital without having to go through the process of issuing new shares to the public.

Who are issued Right Shares?

The following are the people who are issued right shares:

1. Promoters: Promoters of the company may be issued right shares as compensation for their services. This is a way for the company to reward its promoters for their efforts in promoting the company and helping it grow.

2. Holders of Convertible Debentures: Holders of convertible debentures may also be issued right shares. This is because convertible debentures can be converted into equity shares at a later date, and right shares give the debenture holders the right to purchase additional shares at a discounted price.

3. Existing Shareholders: The primary purpose of issuing right shares is to give existing shareholders the opportunity to purchase additional shares at a discounted price. This helps to maintain the existing shareholding pattern of the company and allows shareholders to increase their stake in the company without having to purchase shares from the open market.

Conclusion

In conclusion, right shares are issued to existing shareholders of a company who are given the right to purchase additional shares at a discounted price. This helps the company raise capital without having to go through the process of issuing new shares to the public. The issuance of right shares is a way for the company to maintain its existing shareholding pattern and reward its promoters and debenture holders.

The Reserve which is created for a particular purpose and which is a charge against revenue is called 
  • a)
    Capital Reserve 
  • b)
    General Reserve 
  • c)
    Secret Reserve 
  • d)
    Specific Reserve
Correct answer is option 'D'. Can you explain this answer?

Freedom Institute answered
A specific reserve is one, which is created for some specific purpose by debiting Profit and Loss Appropriation Account. Normally, it is available for the purpose for which it has been created.

The rate of interest on calls-in-advance is paid at A rate of:
  • a)
    5% p.a.
  • b)
    12% p.a.
  • c)
    10% p.a.
  • d)
    None of the above.
Correct answer is option 'B'. Can you explain this answer?

Arjun Singhania answered
The amount received will be adjusted towards the payment of calls as and when they become due. Table A of the Companies Act provides for the payment of interest on calls in advance at a rate of 
12% per annum

Authorized share capital is also known as:
  • a)
    Paid up capital
  • b)
    Issued capital
  • c)
    Nominal Capital
  • d)
    Called up capital
Correct answer is option 'C'. Can you explain this answer?

Nandini Iyer answered
The authorised capital of a company (sometimes referred to as the authorised share capital, registered capital or nominal capital, particularly in the United States) is the maximum amount of share capital that the company is authorised by its constitutional documents to issue (allocate) to shareholders.

T Ltd. proposed to issue 6,000 equity shares of Rs.100 each at a premium of 40%. The minimum amount of application money to be collected per share = ?
  • a)
     Rs.5.00
  • b)
     Rs.6.00
  • c)
     Rs.7.00
  • d)
     Rs.8.40
Correct answer is option 'A'. Can you explain this answer?

Siddharth Sen answered
Minimum Application Money for Equity Shares

The minimum amount of application money to be collected per share can be calculated as follows:

- Face value of one share = Rs.100
- Premium on one share = 40% of face value = Rs.40
- Total cost of one share = Face value + Premium = Rs.100 + Rs.40 = Rs.140
- Minimum application money = 5% of total cost = 5% of Rs.140 = Rs.7
- However, as per SEBI guidelines, the minimum application money cannot exceed Rs.5 per share.

Therefore, the correct answer is option 'A' - Rs.5.00.

Explanation

When a company issues shares to the public, it has to ensure that the minimum application money collected from the investors is not too high. This is because if the minimum application money is too high, it may discourage small investors from applying for the shares. Hence, SEBI has prescribed guidelines on the minimum application money that can be collected.

In this case, T Ltd. is proposing to issue equity shares of Rs.100 each at a premium of 40%. This means that the company will sell each share for Rs.140. As per SEBI guidelines, the minimum application money that can be collected is 5% of the total cost of one share. Hence, the minimum application money for one share is Rs.7.

However, SEBI has also prescribed that the minimum application money cannot exceed Rs.5 per share. Hence, the minimum application money for one share is capped at Rs.5.

Securities Premiums Account is shown in the balance sheet under 
  • a)
    Reserve & Surplus 
  • b)
    Miscellaneous Expenditure 
  • c)
    Current Liabilities 
  • d)
    None of the above
Correct answer is option 'A'. Can you explain this answer?

Rajat Patel answered
A portion of the surplus almost always results in retained earnings, which has the effect of increasing shareholders' equity. A specific part of the surplus comes from other sources, such as increasing the value of fixed assets carried on the balance sheet, the sale of stock at a premium, or the lowering of the par value on common stock. These "other" sources are frequently called "Capital Surplus" and placed on the balance sheet.

In other words, Capital Surplus tells you how much of the company's shareholders' equity is not due to retained earnings.

D Ltd. issued 2,00,000 shares of Rs.100 each at a premium of Rs.20 per share payable as follows :
On application Rs.20
On allotment Rs.50 (including premium)
On first call Rs.30
On second and final call Rs.20
Applications were received for 3,00,000 shares and pro rata allotment was made to applicants of 2,40,000 shares. Money excess received on application was employed on account of sum due on allotment as part of share capital. E, to whom 4,000 shares were allotted, failed to pay the allotment money and on his subsequent failure to pay the first call, his shares were forfeited and F, the holder of 6,000 shares failed to pay the two calls and his shares were forfeited after the second call. Of the forfeited shares, 8,000 shares were reissued to G at a discount of 10%, the whole of E’s forfeited shares being reissued.
 
Q.Amount refunded to shareholders = __________.
  • a)
    Rs 20,00,000
  • b)
    Rs 16,00,000
  • c)
    Rs 12,00,000
  • d)
    Rs 8,00,000
Correct answer is option 'C'. Can you explain this answer?

Srsps answered
Correct Answer :- C
Explanation : Total refund amount = (300000-240000) * 20 
= 12,00,000
so , adjustment towards allotment (20,00,000 -12,00,000) 
= 8,00,000

The part of share capital which can be called up only on the winding up of a company is called: 
  • a)
    Authorised Capital 
  • b)
    Called up Capital 
  • c)
    Capital Reserve 
  • d)
    Reserve Capital 
Correct answer is option 'D'. Can you explain this answer?

Jayant Mishra answered
Reserve Capital It is that portion of uncalled share capital which shall not be capable of being called up except in the event and for the purpose of the company being wound.

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