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Company Accounts

Description: CPT - 9
Number of Questions: 20
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Tags: CPT - 9 Company Accounts
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Under the capital clause of the Memorandum of Association of the company, it is must to state

  1. the division of share capital into shares of fixed amount

  2. the division of the authorised capital into different classes of shares

  3. the rights of various classes of shares

  4. none of these


Correct Option: B
Explanation:

Authorised Capital, i.e maximum amount a company can raise in its lifetime is to be mentioned in the Capital Clause of the Memorandum of Association.

Common seal means the official signature of

  1. company

  2. directors

  3. members

  4. employees


Correct Option: A
Explanation:

Since a comapny is not a human being, its official stamp is considered as its signature. hence, common seal means the signature of the comapny.

As per the Companies Act, preference shares are redeemable within

  1. 24 years

  2. 22 years

  3. 30 years

  4. 20 years


Correct Option: D
Explanation:

According to Section 55, no company, limited by shares, shall issue irredeemable preference shares or preference shares redeemable after the expiry of 20 years from the date of issue. However, a Company may issue preference shares redeemable after 20 years for such infrastructure projects as may be specified, under the Companies Act, 2013.

Reserve capital refers to

  1. capital reserve

  2. that portion of called up share capital which shall not be capable of being called up except in the event and for the purposes of the company being wound up

  3. that portion of uncalled share capital which can not be called up at any time before the company is being wound up

  4. none of the above


Correct Option: C
Explanation:

As per Section 65 of the Companies Act, 2013, a Company may decide by passing a resolution that a certain portion of its subscribed uncalled capital shall not be called up except in the event of winding up of the company which is called Reserve Capital. Reserve Capital is different from Capital reserve. Reserve capital which is portion of the uncalled capital to be called up in the event of winding up of the company is entirely different in nature from capital reserve which is created out of capital profits only.

The issue price of a share can be demanded

  1. only on application

  2. only on allotment

  3. only on call

  4. in lumpsum or installments on application &/or allotment &/or call


Correct Option: D
Explanation:

According to Companies Act,2013 there is no restriction on companies to demand complete issue price of shares only on applcation or allotment or call of shares. Issue price can either be demanded in lumpsum or installments on application &/or allotment &/or call.

Maximum amount that can be collected as premium as a percentage of face value is

  1. 20%

  2. 30%

  3. 40%

  4. unlimited


Correct Option: D
Explanation:

There is no limitation in the Comapnies Act,2013 on the amount maximum amount of premium on issue of shares. For example, a company in its growth stage enjoying a very good market reputation and making high profits can issue a share of Face Value of rs 10 at a premium of Rs. 990.

An authorised capital refers to

  1. paid up value of all shares allotted

  2. called up value of all shares allotted

  3. nominal value of all shares offered to public

  4. that amount which is stated in the capital clause of the Memorandum of Association as the share capital


Correct Option: D
Explanation:

Authorised Share Capital, i.e maximum amount a company can raise in its lifetime is to be mentioned in the Capital Clause of the Memorandum of Association.

If a shareholder does not pay his dues on allotment, for the amount due, there will be a

  1. credit balance in the share allotment account

  2. debited balance in the share forfeiture account

  3. credit balance in the share forfeiture account

  4. debit balance in the share allotment account


Correct Option: D
Explanation:

Share allotment A/c Dr      (Amount due)         To share Capital Cash Dr                           (Amount Received) Call in Arrears Dr           (Amount due)         To share allotment  Thus, there will be debit balance in share allotment account.

Which of the following is not correct?

  1. Nominal capital is the maximum amount that a company is authorized to issue to the public without alternating the memorandum of a association.

  2. Subscribed capital is that part of nominal capital that is offered to the public for subscription

  3. Subscribed capital will be equal to the issued capital, when all the shares offered to the public are taken up by the public

  4. Called up capital is that part of the subscribed capital that has been called up.


Correct Option: B
Explanation:

Issued Capital is that part of nominal capital that is offered to the public for subscriptionSubscribed Capital is that part of the issued share capital, which is subscribed by the public i.e., applied by the public and allotted by the company. It also includes the face value of shares issued by the company for consideration other than cash.

A Ltd. forfeited 50 shares of Rs. 100 each issued at 10% premium on which allotment money of Rs. 30 per share (including premium) and first call of Rs. 30 per share were not received, the second and final call of Rs. 20 per share was not yet called. If 20 of these shares were re - issued as Rs. 80 paid - up for Rs. 90 per share, the Profit on re - issue is -

  1. Rs. 1, 500

  2. Rs. 600

  3. Rs. 900

  4. Rs. 400


Correct Option: D
Explanation:

Balance in Share forefeiture for 50 shares      =Rs 1500 (50*30) Balance in Share forefeiture for 20 shares      =Rs 600 [(20/50)*1500]Adjusted towards share capital                         =Rs 200(20*10)

Profit on re-issue w.r.t 20 shares                    =Rs 400 (600-200) 

1000 shares of Rs. 10 each issued at par were forfeited for the non payment of the final call of Rs. 2 per share. These were re-issued @ Rs. 8 per share fully paid up. The profit on re-issue was

  1. Rs. 8, 000

  2. Rs. 6, 000

  3. Rs. 4, 000

  4. none of these


Correct Option: B
Explanation:

Balance in Call Arrears A/c            = rs 2000 Amount received on re-issue         = Rs 8000 (8*1000) Amount of Profit on re-Issue           = 8000-2000 = Rs 6000

A transfer to Capital Redemption Reserve is required u/s 55 when preference shares are redeemed

  1. by converting them into new preference shares

  2. by converting them into new equity shares

  3. out of divisible profits

  4. out of fresh issue of shares


Correct Option: C
Explanation:

As per Section 55 of Companies Act.2013,where preference shares are redeemed, otherwise than out of the proceeds of a fresh issue of shares (either equity or prefernce), there shall, out of profits which would otherwise have been available for dividends, be transferred to Capital Redemption Reserve Account, a sum equal to the nominal amount of the shares redeemed.

A company forfeited 100 equity shares of Rs. 100 each issued at a premium of 50% (to be paid at the time of allotment) on which 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 re - issued at Rs. 70 per share as Rs. 80 paid up. The profit on re - issue is

  1. Rs. 5, 000

  2. Rs. 4, 000

  3. Rs. 2, 000

  4. none of these


Correct Option: B
Explanation:

Balance in Share Forefeture account                    =Rs5000 (already received) Amount adjusted towards share capital since shares are issued at Rs 70, Rs 80 paid up =Rs 1000 Amount of profit                                                           = rs (5000-1000)                                                                                        =Rs 4000  

Debenture interest

  1. is payable only is case of profit

  2. accumulates in case of loss or inadequate profit

  3. is payable after the payment of preference dividend but before the payment of equity dividend

  4. is payable before the payment of any dividend on shares


Correct Option: D
Explanation:

Debenture Interest is payable irrespective of the fact that the company makes profit or loss. It is like any other expense of the company which is to be paid before payment of preference as well as equity dividend.

Which of the following can be utilised for redemption of preference shares?

  1. The proceeds of fresh issue of equity shares

  2. The proceeds of issue of debentures

  3. The proceeds of issue of fixed deposit

  4. The sale proceeds of investments


Correct Option: A
Explanation:

As per Section 55 of the Companies Act, 2013 Preference Shares can be redeemed out of fresh issue of equity shares or out of profits. However, where any such shares are redeemed, otherwise than out of the proceeds of a fresh issue, there shall, out of profits which would otherwise have been available for dividends, be transferred to Capital Redemption Reserve Account, a sum equal to the nominal amount of the shares redeemed.

Redemption of preference shares

  1. constitutes reduction of authorised share capital

  2. constitutes reduction of Issued share capital

  3. constitutes reduction of subscribed share capital

  4. does not constitute reduction of authorised share capital


Correct Option: D
Explanation:

Authorized Share Capital is the maximum amount of Share capital that a company can issue during its lifetime. Redemption of prefernce share doesnot cause any reduction in this maximum limit, i.e. Authorised Share Capital. Redemption of preference shares causes causes a redution in Subscribed and Issued Share Capital of a company.

To redeem 15% Pref. Shares of Rs. 1, 00, 000 at 5% premium, Rs. 10, 000, 12%. Debentures of Rs. 100 each are issued at a discount of 10%. The amount to be transferred to Capital Redemption Reserve is

  1. nil

  2. Rs. 90, 000

  3. Rs. 91, 000

  4. Rs. 1, 00, 000


Correct Option: A
Explanation:

The proceeds of fresh issue of debentures is not to be utilised for redemption of preference shares. An amount equal to face value of preference shares is to be transferred to the Capital Redemption Reserves if shares are redeemed out of divisible profits.Thus, in the given case, amount to be transferred to CRR would be Rs 1,00,000 since the proceeds of debentures cannot be utilised for the redemption of preference shares.

Which of the following is false with respect to debentures?

  1. These can be issued for cash

  2. These can be issued for consideration other than cash

  3. These can be issued as collateral security

  4. These can be issued in lieu of dividends


Correct Option: D
Explanation:

A debenture is a bond issued by a company under its seal, acknowledging a debt and containing provisions as regards repayment of the principal and interest. Debentures can be issued for cash, or for considerations other than cash or as a colleteral security.Dividends are paid out of profits to the owners (equity or preference shareholders) of the company and the issue od debentures is not to replace dividend paid by the company.

Which of the following statements is false?

  1. At maturity, debenture holders get back their money as per the term sand conditions of redemption

  2. Debentures can be forfeited for non payment of call money

  3. In company's balance sheet, debentures are shown under secured loans

  4. Interest on debentures is charged against profit


Correct Option: B
Explanation:

Debentures is a type of secured loan taken by the company and the debentures are issued at par, or at discount or on premium and the amount is to be paid back on maturity.Generally, a debentureholer will be paying the call money due to receive interest for the same. Debentures are not forefeited due to non payment of calls.

In the balance sheet of a company, Debentures account appears under the head

  1. Share Capital

  2. Reserve & Surplus

  3. Secured Loans

  4. Miscellaneous Expenditure


Correct Option: C
Explanation:

Debentures is a type of secured loan for a company and thus, appears under the head of 'Secured Loans' in Balance Sheet.

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