Test: Issue, Forfeiture And Reissue Of Shares - 1 - Commerce MCQ

Shares Applied = 6000

Shares  Allotted = 5000

Ratio = 5:6

Shyam applied for = 180 shares

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

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

So (1500000 / 125) = 12000 shares

Schedule VI to the Companies Act, 1956 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 Act, 1956, for the preparation of financial statements of an accounting year.

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

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.

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

► 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

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.

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.

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

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

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

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.

► 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.

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.

► 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)

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).

► 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.

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

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 

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.

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.

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.

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.

► 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

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.

► 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

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.

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.

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