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All questions of Unit 2: Issue, Forfeiture and Re-lssue of Shares for CA Foundation 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.

Poonam Reddy 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

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

 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.

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.

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

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).

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

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 

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.

 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.

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?

Simran Pillai answered
's accountd)Profit and Loss account

b) Capital Reserve account.

The balance of Rs. 20,000 represents the excess of net assets over the consideration paid to the vendors. This excess amount is known as capital reserve and is credited to the Capital Reserve account. This reserve can be used for various purposes such as writing off preliminary expenses, issuing bonus shares, etc.

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).

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.

Declared dividend should be classified in the Balance Sheet as a _______.
  • a)
    Provision
  • b)
    Current liability
  • c)
    Reserve
  • d)
    Current asset
Correct answer is option 'B'. Can you explain this answer?

Sai Kulkarni answered
Declared dividend should be classified in the Balance Sheet as a Current liability.

The declared dividend is a liability for the company because it represents an obligation to distribute funds to shareholders. It is recorded on the balance sheet as a current liability because it is typically paid out within one year.

Here are the reasons why declared dividend is classified as a current liability:


  • Timing: Dividends are usually paid out within one year from the date of declaration, making them a short-term obligation.

  • Payment: The company has a legal obligation to pay the declared dividend to its shareholders.

  • Priority: Dividends have a higher priority than other liabilities, such as interest payments, and are usually paid before other obligations.

  • Disclosure: Classifying declared dividend as a current liability provides transparency to investors and stakeholders about the company's financial obligations.


Other options like provision, reserve, or current asset are not appropriate classifications for declared dividends:


  • Provision: Provisions are typically set aside for anticipated future expenses or losses, and declared dividends do not fall under this category.

  • Reserve: Reserves are usually created to strengthen the financial position of the company or for future investments, and declared dividends do not serve this purpose.

  • Current asset: Current assets are resources that are expected to be converted into cash within one year, and declared dividends do not meet this criteria.


Therefore, the correct classification for declared dividend in the balance sheet is as a current liability.

“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.

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.

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).

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 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

A company forfeited 100 equity shares of Rs. 100 each issued at premium of 50% (to be paid at the time of allotment) on which the first call money of Rs. 30 per share was not received, final call of Rs. 20 is yet to be made. These shares were subsequently reissued @ Rs. 70 per share at Rs. 80 paid up. The amount credited to capital reserve is: 
  • a)
    4000
  • b)
    2000
  • c)
    3000
  • d)
    None 
Correct answer is 'A'. Can you explain this answer?

Prashanth Datta answered
Calculation of amount credited to capital reserve:

1. Forfeited shares:

- Total value of forfeited shares = 100 x 100 = Rs. 10,000
- Premium on shares = 50% of face value = 50/100 x 100 = Rs. 50 per share
- Amount received on allotment = Face value + Premium = 100 + 50 = Rs. 150 per share
- First call money not received = Rs. 30 per share
- Total amount received = Rs. 120 per share (150 - 30)
- Total amount forfeited = Rs. 120 x 100 = Rs. 12,000

2. Reissue of shares:

- Reissued at Rs. 70 per share
- Paid-up value = Rs. 80 per share
- Discount on reissue = Rs. 10 per share (80 - 70)
- Total amount received on reissue = Rs. 70 x 100 = Rs. 7,000
- Capital Reserve = Discount on reissue x Number of shares reissued = Rs. 10 x 100 = Rs. 1,000
- Capital Reserve after reissue = Rs. 1,000

3. Adjustment entry:

- Forfeited shares account Dr. 12,000
- To Share capital account (100 x 100) 10,000
- To Share forfeiture account 2,000
- Share forfeiture account Dr. 2,000
- To Capital Reserve account 1,000
- To Capital Reserve account Dr. 1,000
- To Share premium account 1,000

Therefore, the amount credited to capital reserve is Rs. 1,000 on forfeiture and Rs. 3,000 on reissue, making a total of Rs. 4,000.

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 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.

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.

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.

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.

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.

If the issue size is up to Rs. 500 crores, the issued shares should be made fully paid up within ______ of the date of allotment: 
  • a)
    6 months 
  • b)
    10 months 
  • c)
    12 months 
  • d)
    18 months 
Correct answer is option 'C'. Can you explain this answer?

Shanaya Dasgupta answered
Fully Paid-up Shares Requirement for Issue Size up to Rs. 500 Crores

The Companies Act, 2013 mandates that the issued shares must be fully paid-up within a specified time frame, depending on the issue size. For an issue size of up to Rs. 500 crores, the issued shares should be made fully paid up within 12 months of the date of allotment.

Explanation:

Issue size refers to the total value of securities offered for sale by a company. In case the issue size is up to Rs. 500 crores, the issuer must ensure that the shares are fully paid up within a year of the date of allotment. This means that the shareholders must pay the entire face value of the shares and any premium due, if applicable, within 12 months of the allotment date.

If the company fails to receive the full payment within the specified time frame, it can take legal action against the defaulting shareholders. The company can forfeit the shares, sell them to recover the outstanding amount, or take any other appropriate action as deemed fit.

Conclusion:

In conclusion, if the issue size is up to Rs. 500 crores, the issued shares should be fully paid up within 12 months of the date of allotment. The timely payment of the shares is crucial for the smooth functioning of the company and to avoid any legal complications.

 Securities premium is shown under which head in the balance sheet. 
  • a)
    Current liabilities 
  • b)
    Miscellaneous expenditure 
  • c)
    Reserves and surplus 
  • d)
    None of these
Correct answer is option 'C'. Can you explain this answer?

Hrishikesh Mukherjee answered
Securities premium is shown under the head of "Reserves and Surplus" in the balance sheet. This head includes all the profits and reserves accumulated by the company over the years. The securities premium is a type of reserve that is created when a company issues securities at a premium.

The securities premium is the difference between the issue price and the face value of the securities. For example, if a company issues shares with a face value of Rs. 10 at a premium of Rs. 5, then the securities premium would be Rs. 5 per share. This premium amount is collected by the company and kept in a separate account called the securities premium account.

The securities premium account is a part of the reserves and surplus of the company and is shown under this head in the balance sheet. This account is created to absorb any future losses that the company may incur or to finance future capital expenditures.

In summary, securities premium is shown under the head of "Reserves and Surplus" in the balance sheet as it is a type of reserve created by the company when it issues securities at a premium.

Dividends are usually paid upon:
  • a)
    Paid-up Capital
  • b)
    Called up Capital
  • c)
    Issued Capital
  • d)
    Reserve Capital
Correct answer is option 'A'. Can you explain this answer?

Sameer Jain answered
Dividends are usually paid upon Paid-up Capital.

Dividends are a distribution of the company's profits to its shareholders. They are usually paid in proportion to the number of shares held by each shareholder. The amount of dividends that can be paid by a company is determined by its available profits.

When a company is incorporated, it issues shares to its shareholders. These shares represent the ownership interest in the company. The shareholders are required to pay a certain amount of money for each share they hold. This amount is called the called-up capital.

However, not all shareholders may have paid the full amount of the called-up capital. The amount that the shareholders have actually paid is called the paid-up capital. This is the amount that the company has received from the shareholders and can use for its operations.

Explanation:

Dividends are usually paid upon paid-up capital because this represents the actual amount of money that the company has received from the shareholders. It is the amount that the company can use for its operations and distribute as dividends to the shareholders.


The paid-up capital is calculated by multiplying the number of shares issued by the company by the amount paid per share. For example, if a company has issued 1,000 shares and the shareholders have paid Rs. 10 per share, the paid-up capital would be Rs. 10,000.


In contrast, called-up capital represents the total amount that the shareholders are required to pay for their shares. This may include the amount that has not yet been paid by the shareholders. Therefore, it does not accurately reflect the amount of money that the company has received and can distribute as dividends.


Issued capital represents the total number of shares that have been issued by the company. It does not take into account the amount paid for each share or the amount that has been paid by the shareholders.


Reserve capital is a portion of the company's profits that is set aside and not distributed as dividends. It is retained by the company for future use or investment. It is not directly related to the payment of dividends.


Therefore, the correct answer is option 'A' - Paid-up Capital.

Dividends are usually paid on: 
  • a)
    Authorised Capital 
  • b)
    Issued Capital 
  • c)
    Called-up-capital 
  • d)
    Paid-up-capital 
Correct answer is option 'D'. Can you explain this answer?

Subhankar Sen answered
Dividend is the distribution of profit to its shareholders. It is paid on the paid up share capital. Dividends are not paid on calls in advance.

X purchased the running business of A for Rs. 60,000. In place of cash he discharged the purchase consideration by issue of equity shares of Rs. 10 each at 20% premium. Find the number of shares to be issued ?
  • a)
    6000
  • b)
    7500
  • c)
    5000
  • d)
    8000
Correct answer is option 'C'. Can you explain this answer?

Simran Pillai answered
Calculation of Purchase Consideration:
The purchase consideration is Rs. 60,000.

Calculation of Share Premium:
The shares are issued at a premium of 20%. Therefore, the share premium will be:
20% of Rs. 10 = Rs. 2
So, the issue price of each share will be Rs. 10 + Rs. 2 = Rs. 12.

Calculation of Number of Shares:
To calculate the number of shares to be issued, we need to divide the purchase consideration by the issue price per share.
Number of shares = Purchase consideration / Issue price per share
= Rs. 60,000 / Rs. 12 per share
= 5000 shares.

Therefore, the number of shares to be issued is 5000. Hence, option (c) is the correct answer.

Premium received on issue of shares are shown under the head ______ in Balance Sheet : 
  • a)
    Reserve and Surplus 
  • b)
    Current liabilities and Provisions 
  • c)
    Share Capital 
  • d)
    Contingent Liabilities 
Correct answer is option 'A'. Can you explain this answer?

Arun Khanna answered
Reserves are the funds earmarked for a specific purpose, which the company intends to use in future
Surplus is where the profits of the company reside. This is one of the points where the balance sheet and the P&L interact. Dividends are paid out of the surplus
Shareholders’ equity = Share capital + Reserves + Surplus. Equity is the claim of the owners on the assets of the company. It represents the assets that remain after deducting the liabilities. If you rearrange the Balance Sheet equation, Equity = Assets – Liabilities.

According to Section 78 of the companies Act, the amount in the Securities Premium A/c cannot be used for the purpose of :
  • a)
    Issued of fully paid bonus shares
  • b)
    Writing off losses of the company
  • c)
    Writing off preliminary expenses
  • d)
    Writing off commission or discount on issues of shares
Correct answer is option 'B'. Can you explain this answer?

Madhavan Malik answered
Explanation:

Section 78 of the Companies Act deals with the utilization of Securities Premium Account. According to this section, the amount in the Securities Premium A/c cannot be used for the purpose of writing off losses of the company. The Securities Premium Account is created when a company issues shares at a premium, i.e., at a price higher than the face value of the share. The premium amount received by the company is credited to the Securities Premium Account. This account can be used for the following purposes:

a) Issued of fully paid bonus shares - The Securities Premium Account can be used to issue fully paid bonus shares to the existing shareholders of the company.

b) Writing off preliminary expenses - The Securities Premium Account can be used to write off the preliminary expenses incurred by the company in setting up the business.

c) Writing off commission or discount on issues of shares - The Securities Premium Account can be used to write off the commission or discount given to the underwriters or brokers for the issue of shares.

d) Redemption of preference shares - The Securities Premium Account can be used to redeem the preference shares of the company.

However, the amount in the Securities Premium A/c cannot be used for the purpose of writing off losses of the company. This is because the Securities Premium Account is created out of the premium received on the issue of shares and not out of the profits earned by the company. Writing off losses from the Securities Premium Account would be equivalent to using the investors' money to cover the company's losses, which would be unfair to the investors.

In conclusion, the Securities Premium Account can be used for various purposes, but it cannot be used to write off the losses of the company.

Chapter doubts & questions for Unit 2: Issue, Forfeiture and Re-lssue of Shares - Accounting for CA Foundation 2025 is part of CA Foundation exam preparation. The chapters have been prepared according to the CA Foundation exam syllabus. The Chapter doubts & questions, notes, tests & MCQs are made for CA Foundation 2025 Exam. Find important definitions, questions, notes, meanings, examples, exercises, MCQs and online tests here.

Chapter doubts & questions of Unit 2: Issue, Forfeiture and Re-lssue of Shares - Accounting for CA Foundation in English & Hindi are available as part of CA Foundation exam. Download more important topics, notes, lectures and mock test series for CA Foundation Exam by signing up for free.

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