Test: Issue, Forfeiture And Reissue Of Shares - 1


30 Questions MCQ Test Principles and Practice of Accounting | Test: Issue, Forfeiture And Reissue Of Shares - 1


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QUESTION: 1

A company invited application for subscription of 5000 shares. The application were received for 6000 shares. The share were allotted on pro-rata bases. If Shyam applied for 180 shares, how many shares would be allotted to him?

Solution:

Shares Applied = 6000

Shares  Allotted = 5000

Ratio = 5:6

Shyam applied for = 180 shares

Shares allotted to Shyam = 180*5/6 =150

QUESTION: 2

A Ltd. acquired, assets worth Rs. 15,00,000 form H Ltd. by issued of shares of Rs. 100 @ premium of 25%. The number of shares issued to settle the purchase consideration will be: 

Solution:

Divide 1500000 by 125 rather than 100 because of 25%premium added (100+25 = 125)

So (1500000 / 125) = 12000 shares

QUESTION: 3

According to Company Act, 1956, Balance sheet of a company is prepared as per 

Solution:

Schedule VI to the Companies Act1956 deals with the form of Balance Sheet and Profit and Loss Account and classified disclosure to be made therein and it applies uniformly to all the companies registered under the Companies Act1956, for the preparation of financial statements of an accounting year.

QUESTION: 4

When shares are issued to promoters which account should be debited: 

Solution:

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

QUESTION: 5

Balance amount in the share forfeiture would be shown in the balance sheet under the head of ____________.

Solution:

A company forfeits the membership of shareholder due to non- payment of allotment or call money by that shareholder. It keeps the amount received before such forfeiture and therefore, it is a gain for the company. Forfeiture of that individual’s shares reduces the share capital by that amount. Hence, it is shown on the Liability side of the Balance Sheet under the ‘Share Capital’ head.

QUESTION: 6

500 shares of Rs. 20 each issued at 5% discount are forfeited for non-payment of allotment and final call money @ Rs. 9 and Rs. 5 respectively. Amount credited to Share forfeiture A/c is: 

Solution:

5%of 20 = 1
20-1 = 19
9+5 = 14
19-14 = 5
5 x 500 = 2500

QUESTION: 7

Premium received on issue of shares are shown under the head ______ in Balance Sheet : 

Solution:

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

QUESTION: 8

The part of share capital which can be called up only on the winding up of a company is called: 

Solution:

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.

QUESTION: 9

As per the Companies Act only preference shares, which are redeemable within ______ can be issued: 

Solution:

As per the section under the companies act, the redeemable preference shares can be redeemed after 20 years of issue of such shares. Once 20 years are completed theses preference shares cannot be redeemed back to the shareholders, Moreover, only redeemedable preference shares are considered while doing any redemption procedure.

QUESTION: 10

E Ltd. has allotted 10,000 shares to the applicants of 14,000 shares on pro-rata basis. The amount payable on application is Rs. 2. F applied for 420 shares. The number of shares allotted and the amount carried forward for adjustment against allotment due from F:

Solution:

10000÷14000×420 = 300 shares
420×2=840
300×2=600
Amount = 840-600=240

QUESTION: 11

Equity – Rs. 90,000, Liability – Rs. 60,000 Profit of the year – Rs. 20,000, Find Total Assets

Solution:

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

QUESTION: 12

The rate of interest paid on calls in advance as per table A is : 

Solution:

Table A of the companies act provides for the payment of Interest on calls in advance @ 12%.

QUESTION: 13

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: 

Solution:

When we acquire the assets of 75000. and per share costing is given 10+ 5,( which is for premium) so that the per share costing is 15 so the assets is acquired from him for (75000/5) =5000 shares.

QUESTION: 14

“Proposed dividends” is shown in the Balance sheet of a Company under the head: 

Solution:

► 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.

QUESTION: 15

Equity shareholders have a right to: 

Solution:

Voting Rights of Shareholders: Common stock shareholders in a company have certain rights relevant to their equity investment. A significant right of shareholders is the right to vote on definite corporate matters.

QUESTION: 16

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: 

Solution:

► 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)

QUESTION: 17

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: 

Solution:

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).

QUESTION: 18

The long term assets that have no physical existence but are rights that have value is known as

Solution:

► The first option current asset examples are cash , bank balance etc which we can see and touch. 
► The second option fixed asset examples are machine , land etc and these also can be touched and seen.
► Investment which are separate from both fixed and current also can be seen.
► The long term assets that have no physical existence but are rights that have value is known as Intangible assets. An intangible asset is an asset that is not physical in nature. Goodwill, brand recognition and intellectual property, such as patents, trademarks, and copyrights, are all intangible assets.

QUESTION: 19

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: 

Solution:

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

QUESTION: 20

Equity shareholders are ________of a company

Solution:

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 

QUESTION: 21

The amount received over and above the par value is credited to which account?

Solution:

Securities premium account contains the money that is received by way of premium in calls. premium is the value that is over and above the par value.

QUESTION: 22

Dividends are usually paid on: 

Solution:

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.

QUESTION: 23

A ________ is an artificial person created by law with a perpetual succession and a common seal

Solution:

A company is an artificial person created by a law and taken with perpetual succession and a common seal. This should discover with more comprehensive definition that has been given by Prof. Haney. The company usually separate with entity with a perpetual succession and a common seal.

QUESTION: 24

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: 

Solution:
QUESTION: 25

Securities Premiums Account is shown in the balance sheet under 

Solution:

► Security Premium Reserve is the additional amount charged on the face value of any share when the shares are issued, redeemed, and forfeited.
► The Companies Act 2013 states that when security premium has to be recorded in the balance sheet, it done in the Reserve & Surplus mentioned under the Equity & Liabilities of a company’s balance sheet. It is added only because the premium received by the company is an income for them. Moreover, reserve & surplus head records all those items only which are related to any kind of reserve created by the company for a specific purpose.

Thus, this item is added under the Reserve & Surplus

QUESTION: 26

Reserve capital means: 

Solution:

Reserve capital and capital reserve are two different thing. When company subscribe share, company invoke those amount which is needed and those amount which is not needed is reserve capital and company invoke that amount on dissolution us called reserve capital and it is uncalled capital on subscribe share.

QUESTION: 27

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: 

Solution:

► Equity share final call A/c Dr. = 2500
    To Equity share capital = 2500
(Being final call due)

► Equity share capital A/c Dr. = 10,000
      To calls in arrear = 2500
      To share forfeiture = 7500
(being shares forfeited)

► Bank A/c   Dr = 4900
Share Forfeiture A/c Dr  = 2100
    To Equity share capital  = 7000
(Being 700 shares re-issued)

► Share forfeiture A/c = 3150
     To Capital Reserve  = 3150
(Being balance on 700 shares in share forfeiture account transferred to capital reserve)

Notes:- Balance in share forfeiture A/c    =    7500
              Amount for 700 shares =   7500/1000*700 = 5250
              Less: Amount Utilised   = (2100)
            Balance left   =   3150

QUESTION: 28

The amount of capital that is mentioned in capital clause is know as: 

Solution:

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.

QUESTION: 29

The Reserve which is created for a particular purpose and which is a charge against revenue is called 

Solution:

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.

QUESTION: 30

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?

Solution:

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