Commerce & Accountancy – Day 5

Topics covered:

• Issue of share capital

• Redemption of preference shares

• Bonus and rights issue

• Buyback of shares

• ESOP
Q.1) Consider the below statements:
Statement 1: Paid up capital is part of called up capital that the members of company or
shareholders have paid.
Statement 2: Capital Reserve is part or portion of uncalled share capital of a company which
can be called only in case of winding up of the company.

[a] Only 1 is correct

[b] Only 2 is correct

[c] Both 1 and 2 are correct

[d] Both 1 and 2 are incorrect

Answer: Option A
Q.2) Which of the following accounts is credited when the allotment money becomes due?

[a] Share allotment A/c

[b] Share capital A/c

[c] Bank A/c

[d] Share Application A/c

Answer: Option B
Q.3) Consider the below statements:
Statement 1: The Securities Premium Amount may be utilized by a company for writing off any
loss on sale of fixed asset.
Statement 2: In the event of winding up of the company, equity shareholders are repaid before
preference shareholders.
[a] Only 1 is correct

[b] Only 2 is correct

[c] Both 1 and 2 are correct

[d] Both 1 and 2 are incorrect

Answer: Option D
The amount received on SPR can be utilized for:
• Issue of fully paid bonus shares
• Writing off preliminary exp. Of the company
• Writing off securities issue exp., commission paid, discount on issue of securities
• For providing the premium payable on redemption of redeemable prefernce shares or
debentures of the company
• For buyback of its own shares
Q.4) XYZ Ltd. acquired assets worth Rs 7,50,000 from ABC Ltd. by issue of shares of Rs 100 at a
premium of 25%. The number of shares to be issued by XYZ Ltd. to settle the purchase
consideration should be?

[a] 7,500 shares

[b] 9,375 shares

[c] 6,000 shares

[d] 10,000 shares

[e] 5,000 shares

Answer: Option C
Q.5) If a share of Rs 10 issued at a premium of Rs 2 on which the full amount has been called
and Rs 8 (including premium) paid is forfeited, the Share Capital Account should be debited
with
[a] Rs 12
[b] Rs 10
[c] Rs 8
[d] Rs 6
Answer: Option B
Q.6) Share Allotment Account is a

[a] expense account

[b] liability account

[c] asset account

[d] income account

Answer: Option C
Q.7) Consider the below statements:
Statement 1: Calls-in-advance is shown as a separate item as Other Current Liability under
Current Liabilities.
Statement 2: Calls-in-arrears is shown by way of deduction from subscribed capital (subscribed
but not fully paid-up) in the Note on Share Capital in the Balance Shet

[a] Only 1 is correct

[b] Only 2 is correct

[c] Both 1 and 2 are incorrect

[d] Both 1 and 2 are correct

Answer: Option D
Q.8) E Ltd. had 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 money due from F is ?

[a] 60 shares; Rs 120

[b] 340 shares; Rs 160

[c] 320 shares; Rs 200

[d] 300 shares; Rs 240

[e] 588 shares; Rs 336

Answer: Option D
Q.9) A company issued 10,000 shares of the value of Rs 10 each, payable Rs 3 on application,
Rs 3 on allotment and Rs 4 on the first and final call. All amounts are duly received except the
call money on 100 shares. These shares are subsequently forfeited by Directors and are resold
as fully paid-up for Rs 500. How much amount will be transferred to Capital Reserve?

[a] Rs 100

[b] Rs 400

[c] Rs 500

[d] Rs 300

[e] Rs 600
Answer: Option A
Q.10) XYX Ltd issued 2000 , 12% preference shares of Rs 100 each at par on 01-06-2021, which
are redeemable at a premium of 10%. For the purpose of redemption, the company issued
1,500 equity shares of Rs 100 each at a premium of 20% per share. At the time of redemption
of preference shares, the amount to be transferred by the company to the Capital Redemption
Reserve Account will be?

[a] Rs 20,000

[b] Rs 30,000

[c] Rs 40,000

[d] Rs 50,000

[e] Rs 70,000
Answer: Option D
Q.11) Consider the below statements:
Statement 1: The proceeds from issue of debentures can be utilized for the purpose of
redemption of preference shares.
Statement 2: Only fully paid up preference shares can be redeemed by a company.
[a] Only 1 is correct
[b] Only 2 is correct
[c] Both 1 and 2 are correct
[d] Both 1 and 2 are incorrect
Answer: Option B

Preference shares shall be redeemed out of the following:

• Profits of the company which would otherwise be available for dividend or

• Out of the proceeds of a fresh issue of shares made for the purposes of such redemption;
Fresh issue of shares can be of equity as well as preference or can be both.
Q.12) Which of the following statements is true with regard to declaring and issuing of bonus
shares?
[a] Assets are transferred from the company to the shareholders
[b] A Bonus issue is same as declaration of dividends.
[c] A bonus issue results in decrease in reserves and surplus.
[d] A company’s net worth increases as a result of bonus issue.
Answer: Option C
Q.13) Which of the following is not a pre-requisite for issuance of bonus shares?
[a] Sufficient balance in bank account of company
[b] Authorization of Articles of Association
[c] Timely payment of statutory dues of employees such as PF, Gratuity etc.
[d] Partly paid shares should be made fully paid up.
[e] Timely payment of interest or principal in respect of fixed deposits or debt securities issued
by the company
Answer: Option A
Q.14) Consider the below statements:
Statement 1: Earnings per share increases after a bonus issue.
Statement 2: Rights issue of shares results in decrease of market value of per share in
comparison to market price before rights issue.
Statement 3: Right shares enable existing shareholders to maintain their proportional holding
in the company.
[a] 1 and 2 are correct
[b] 1 and 3 are incorrect
[c] Only 3 is correct
[d] 2 and 3 are correct
[e] 1, 2 and 3 are correct
Answer: Option D

Right share issue cause dilution in the market value of the share.
Q.15) A company’s share’s face value is Rs 10, book value id Rs 20, right issue price is Rs 30 and
market price is Rs 40. Wile recording the issue of right share, the securities premium will be
credited with
[a] Rs 10
[b] Rs 20
[c] Rs 30
[d] Rs 40
Answer: Option B
Q.16) Which of the following is the correct formula to calculate value of right?
[a] (Cum-right value of share) – (Ex-right value of share)
[b] (Cum-right value of share) + (Ex-right value of share)
[c] (Ex-right value of share) – (Cum-right value of share)
[d] (Cum-right value of share) * (Ex-right value of share)
Answer: Option A

• Right of renunciation

• Options available to shareholders

o Buy more shares
o Sell them in market
o Reject the right offer
Q.17) A company offers new shares of Rs 100 each at 25% premium to existing shareholders
on one for four bases. The cum-right price of a share is Rs 150. Calculate the value of a right.
[a] Rs 15 per share
[b] Rs 10 per share
[c] Rs 5 per share
[d] Rs 20 per share
[e] Rs 25 per share
Answer: Option C

[𝐂𝐮𝐦−𝐫𝐢𝐠𝐡𝐭 𝐯𝐚𝐥𝐮𝐞 𝐨𝐟 𝐞𝐱𝐢𝐬𝐭𝐢𝐧𝐠 𝐬𝐡𝐚𝐫𝐞𝐬 + 𝐑𝐢𝐠𝐡𝐭𝐬 𝐬𝐡𝐚𝐫𝐞𝐬 ∗ 𝐢𝐬𝐬𝐮𝐞 𝐩𝐫𝐢𝐜𝐞 ]

Ex-right value =
𝐞𝐱𝐢𝐬𝐭𝐢𝐧𝐠 𝐧𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐬𝐡𝐚𝐫𝐞𝐬 + 𝐧𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐫𝐢𝐠𝐡𝐭 𝐬𝐡𝐚𝐫𝐞𝐬

Right shares are normally offered at a price less than the cum-right value of the share.
Q.18) There are two methods of accounting for ESOP which are:
[a] Market Value method or Fair Value method
[b] Intrinsic Value method or Fair Value method
[c] Intrinsic Value method of Book Value method
[d] Market Value method or Book Value method
Answer: Option B
Q.19) Consider the below statements:
Statement 1: The time period between the grant date and the date on which all the specified
vesting conditions of an employee is to be satisfied is called vesting period.
Statement 2: The price payable by the employee for exercising the option granted to him is
called exercise price.
[a] Only 1 is correct
[b] Only 2 is correct
[c] Both 1 and 2 are correct
[d] Both 1 and 2 are incorrect
Answer: Option C
Q.20) Consider the below statements:
Statement 1: Buyback of shares increases the earning per share of the company.
Statement 2: Companies are not permitted to buy-back their own shares out of securities
premium.
[a] Only 1 is correct
[b] Only 2 is correct
[c] Both 1 and 2 are correct
[d] Both 1 and 2 are incorrect
Answer: Option A
Q.21) When a company purchases its own shares out of free reserves; a sum equal to nominal
value of shares so purchased shall be transferred to
[a] Capital Reserve
[b] Buy-back reserve
[c] Revenue Redemption Reserve
[d] Capital Redemption Reserve
[e] General Reserve
Answer: Option D

CRR can be used only to issue fully paid bonus shares.