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Corporate Accounting M.Com (Entrance) By – Dheeraj Kr. Singh 1

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Trend Analysis of Questions M.Com (Entrance) D.U.

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M.Com Entrance 2017 (9 Questions)

38. A company may purchase its own shares out of:

(a) General reserves and securities premium account (c) Debenture redemption reserve

(b) Revaluation Reserve (d) None of the above

39. A company may purchase its own 400, 10% Debentures of Rs. 100 each at Rs.90 on 31st Decembers,

2015. Calculate the amount paid exclusively for the Debenture if quotations are ex-interest.

Debenture interest is paid on 31st march and 30

th September every year.

(a) Rs.36,000 (c) Rs.38,000

(b) Rs.37,000 (d) None of these

40. Reconstruction accounts can be utilized

(a) To write off Provision for doubtful debt (c) To write off Deferred Revenue Expenditure

(b) To write off preliminary expenses (d) All of the above

41. Financial Ratio are used to:

(a) Calculate Profit

(b) Determine the Dividend of the company

(c) Calculate relationship between Current Assets and Current Liabilities

(d) Assess the financial health of the company

42. When the liquidation expenses are paid and borne by the transferor the following entry needs to be

passed in the books of the transferor company:

(a) Realisation Expenses Account Dr. (c) Bank Account Dr.

To Bank Account To Transferee Company Account

(b) Transferee Company Account Dr. (d) None of the above

To Bank Account

43. Issue of shares for purchase of machinery is shown under which heading while preparing Cash Flow

Statement as per AS-3?

(a) Cash flow from operating activities (c) Cash flow from financing activities

(b) Cash flow from investing activities (d) None of above

44. How much amount will be credited to Capital Reserve Account if 200 shares of Rs. 10 each are

forfeited on which Rs. 8 per share has been called and only Rs. 2 per share has been paid, reissued at

Rs. 9 per share as fully paid up.

(a) Rs.300 (c) Rs.200

(b) Rs.100 (d) Rs.400

45. Calculate the amount of current liability from the following information:

Current Ratio is 2.8

Acid Test Ratio is 1.5

Working Capital = Rs.1,62,000

(a) Rs.70,000 (c) Rs.90,000

(b) Rs.80,000 (d) Rs.96,000

55. Which one of the following would not be revealed by company cash flow statement?

(a) Whether the company has paid Dividend during the year

(c) Whether the company has exceeds its overdraft limit during the year

(b) How the company has managed the working capital over the last financial year

(d) Whether the company has raised extra-long term funding over the year


10.With reference to analysis and interpretation of financial statements, the current assets to the current

liability ratio is said to be satisfactory, if it is:

(a) 1 : 2 (b) 2 : 1

(c) 1 : 1 (d) 1.5 : 0.5

11. X Ltd. goes into liquidation and an existing company Z Ltd. purchase the business of X Ltd. It is a

case of:

(a) Absorption (b) Externational Reconstruction

(c) Amalgamation (d) None of the above

13. The profits made during the year were Rs. 25,000 and there was a decrease in the value of current

assets to the extend of Rs. 10,000. However, there was a decrease in the value of current liabilities to

the extent of Rs. 5,000. Hence cash generated from operations equals:

(a) Rs. 20,000 (b) Rs. 25,000

(c) Rs. 30,000 (d) None of the above



18. Preference shares of Rs. 2 lakhs are redeemed at par for which fresh equity shares of Rs. 80,000 are

issued at a premium of 10%. What amount will be transferred to capital Redemption Reserve

Account?

(a) Rs. 2,00,000 (b) Rs. 1,20,000

(c) Rs. 1,12,000 (d) Nil

19. When debentures are provided as collateral security, interest is paid on:

(a) Nominal value of debentures (b) Face value of debentures

(c) Discounted value of debentures (d) No interest is paid


161.Which of the following items would not likely be classified as an operating activity?

(a) Issuance of debt (b) Acquisition of a competitor

(c) Sale of automobiles by an automobile dealer (d) Insurance of equity shares

168.The initial measurement of goodwill is most likely affected by :

(a) An acquisition‟s purchase price

(b) Acquired company‟s book value

(c) Fair value of the acquirer‟s assets and liabilities

(d) Market value of assets and liabilities

169.An investor concerned with whether a company can meet its near term obligation is most likely is

calculate:

(a) Current ratio (b) Return total capital

(c) Financial leverage ratio (d) Assets turnover ratio

170.The sale of a building for cash would be classified as what type of activity on cash flow statement?

(a) Operating (b) Investing

(c) Financing (d) Not considered

171.Comparison of a company‟s financial results to other peer companies for the same period is called:

(a) Technical analysis (b) Time series analysis

(c) Cross-sectional analysis (d) Fundamental analysis

172.In order to assess a company‟s ability to fulfill its long-term obligation, an analyst would most likely

examine:

(a) Activity ratios (b) Liquidity ratios

(c) Solvency ratios (d) Debt equity ratio

178.Transfer to capital redemption reserve is not allowed from:

(a) General reserve (b) Profit prior to incorporation

(c) Reserve fund (d) Net profit

179.When interest on own debentures becomes due, it will be credited to:

(a) Profit and Loss account

(b) Own debentures Account

(c) Debentures Interest Account

(d) Interest on own Debentures Account

184.A company has net working capital of Rs. 3 lakh, current ratio of 1.8 and liquid ratio of 1.6. Its value

of stock is :

(a) Rs. 55,000 (b) Rs. 65,000

(c) Rs. 75,000 (d) Rs. 85,000


25. ABC company having its net working capital of Rs. 3 lakhs, has the current ratio 1.8 and liquid

ratio 1.6. Its value of stock is:

(a) Rs. 55,000 (b) Rs. 65,000

(c) Rs. 75,000 (d) Rs. 85,000

41. The amount of share premium can be used wholly or in part for :

(a) Writing off preliminary expenses (b) Writing off goodwill

(c) Writing of advertising expenses (d) Purchasing fixed assets

42. The profit made an reissue of forfeited shares is transferred to:

(a) Capital reserve (b) Capital redemption reserve

(c) General reserve (d) Profit and loss account

43. Discount on the issue of debenture is written off:

(a) Before redemption of debentures (b) After redemption of debentures

(c) In any period selected by the company (d) In no case later than the date of

redemption



44. Dividend by a company can be paid from

(a) Profit of the current year

(b) Undistributed profits of previous years.

(c) Money provided by central govt. of any state govt. for the payment of dividend

(d) All of the above

45. Which of the following items is included on statement of changes in financial position only because

of the total financial resources concept?

(a) Depreciation

(b) Issue of equity capital

(c) Purchase of govt. securities

(d) Retirement of long term debt by issue of preferred capital


3. X Co. Ltd. forfeited shares of Rs. 10 each on which Rs. 4 per share was paid. The company issued 40

shares @ Rs. 8 per share as fully paid. Amount transferred to capital reserve will be:

(a) Rs. 400 (b) Rs. 160

(c) Rs. 240 (d) Rs. 80

4. To the extent preference shares have been redeemed out of profits, amount equal to the face value of

preference shares redeemed should be transferred to:

(a) Development Rebate Reserve (b) General Reserve

(c) Sinking Reserve (d) Capital redemption Reserve

5. The amount of share premium can be used wholly or in part for:

(a) Writing off the preliminary expenses (b) Writing off goodwill

(c) Writing off advertising expenses (d) Purchasing fixed assets

7. The credit balance of profit and loss appropriation account in the case of a company is transferred to

(a) Capital account (b) Current account

(c) Reserve and surplus (d) None of the above

8. Call-in-advance is a:

(a) Long term liability (b) Current liability

(c) Contingent liability (d) None of the above

14. The current ratio of a company is 2 : 1 while quick ratio is 1.80 : 1. If the current liabilities are Rs.

40,000, they value of stock will be:

(a) Rs. 6,400 (b) Rs. 8,000

(c) Rs. 10,000 (d) Rs. 12,000


1. Upon forfeiture of shares, share capital account is debited by:

(a) Paid-up amount (b) Calls-in arrears

(c) Nominal value of such shares (d) Called up amounts

15. The current ratio of the company is 2 : 1 while quick ratio is 1.80. If the current liabilities are Rs.

40,000 the value of stock will be:

(a) Rs. 6,400 (b) Rs. 8,000

(c) Rs. 10,000 (d) Rs. 12,000

200. Dividend by a company can be paid from

(a) Profit of the current year

(b) Undistributed profit of the previous year

(c) Money provided by Central Government or any State Government for the payment of

dividend



1. As per Accounting Standard-14, purchase consideration means the amount payable by the

Transferee Co. to the Transferor Co. for:

(a) The shareholders plus liquidation expenses

(b) The shareholders

(c) The shareholders and secured creditors

(d) The shareholders and secured debentures



2. In case of amalgamation in the nature of purchase, the excess of purchase consideration over the net

assets is debited to:

(a) Profit and Loss A/c (b) General Reserve A/c

(c) Goodwill A/c (d) Amalgamation adjustment A/c

3. X Ltd. forfeited 200 shares of Rs. 10 each on which Rs. 6 per share were paid. The company reissued

150 shares as fully paid up on a payment of Rs. 4 per share. What amount will be transferred to

capital Reserve A/c?

(a) Rs. 1,200 (b) Rs. NIL

(c) Rs. 300 (d) Rs. 900

4. Which among the following is not a condition for Buy-back of Equity Shares?

(a) Buy-back is authorised by Articles of Association of the Company

(b) A special resolution for buy back to shares

(c) Only partly paid up shares can be bought back

(d) SEBI guidelines relating to buy back are to be followed

5. If the rate of dividend declared by a company exceeds 20%, then the compulsory transfer of reserves

out of the current year profit shall be:

(a) 2.5% of profit after tax (b) 5% of profit after tax

(c) 7.5% of profit after tax (d) 10% of profit after tax

6. In the Balance sheet of a company, the assets are arranged in the order of their:

(a) Book Value (b) Liquidity

(c) Permanence (d) Market value

8. Which of the following is not a current liability?

(a) Bank Overdraft (b) Bills payable

(c) Unclaimed Dividend (d) Minority Interest

9. What is the „Prescribed Form of the Balance Sheet‟ of a limited Company?

(a) Horizontal form only

(b) Vertical form only

(c) No form is prescribed under the companies Act

(d) Both A and B

10. Premium on issue of securities can be used for:

(a) Payment of dividend (b) Payment of interest on debentures

(c) Transfer to Capital Redemption Reserve (d) Issue of fully paid bonus shares


18. If average stock is Rs. 20,000. Closing stock is Rs. 4,000 more than value of opening stock. Closing

stock will be:

(a) Rs. 16,000 (b) Rs. 18,000

(c) Rs. 20,000 (d) Rs. 22,000

37. Proposed dividend is shown in the Balance Sheet of a company under the head:

(a) Provisions (b) Reserves and Surplus

(c) Current Liabilities (d) Other Liabilities

38. In the balance sheet of Holding Company, Minority Interest is shown:

(a) Immediately after share capital (b) Under reserves and surplus

(c) Under current liabilities (d) Under secured loans

39. 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

40. Dividends are usually paid on:

(a) Authorised capital (b) Issued capital

(c) Called up capital (d) Paid up capital

41. Which statement is issued before the issue of shares?

(a) Memorandum of Association (b) Prospects

(c) Articles of Association (d) Promoters‟ statement

42. Following are the details of ABC Ltd.

Outstanding fully paid preference shares = Rs. 3,00,000

Premium on Redemption = 10%

General Reserve = Rs. 1,50,000

Security Premium balance = Rs. 35,000

Fresh issue is to be made at a discount of 10%

The face value of fresh issued shares will be:



(a) Rs. 1,66,667 (b) Rs. 1,50,000

(c) Rs. 1,85,000 (d) Rs. 1,80,000

43. Loss of issue of debentures is generally written off in:

(a) 8 years (b) 10 years

(c) 15 years (d) Over the period of redemption

44. Cash flows statement is prepared on:

(a) Accrual basis (b) Cash basis

(c) Accrual cum cash basis (d) None of these

45. External Reconstruction is:

(a) Amalgamation in the nature of merger (b) Amalgamation in the nature of purchase

(c) Amalgamation in the nature of absorption (d) None of the above


70. In case of companies Accounts, when shares are forfeited, the Share Capital Account is debited by:

(a) Paid-up amount (b) Called up amount

(c) Nominal value of shares (d) None of these

72. Under the yield method of valuation of equity share capital, if for an equity share of Rs. 50, the

normal rate of returns is 10% and the expected rate of return is 5%, then the value of an equity share

will be:

(a) Rs. 25 (b) Rs. 50

(c) Rs. 100 (d) None of these

73. It is given that net assets available for equity and preference shares amount to Rs. 1,87,000. The paid

up capitals are 10,000 are equity shares of Rs. 4 each and 5,000 preference shares of Rs. 10 each

Therefore, the value of a preference share will be :

(a) Rs. 10 per share (b) Rs. 8 per share

(c) Rs. 20 per share (d) none of these

74. When the expenses of liquidation are borne by the vendor company, then the vendor company debits:

(a) Realization A/c (b) Bank A/c

(c) Goodwill A/c (d) None of these

75. If there is any balance in the Capital Reduction Account after writing off all the accumulated losses,

then the same is transferred to:

(a) Share Capital A/c (b) Capital Reserve A/c

(c) General Reserve A/c (d) None of these

76. In case of liquidation of a company, bank overdraft having a second floating charge will get

preference over:

(a) Bills accounted likely to be dishonoured

(b) Debentures having first floating charge

(c) Wages of worker amounting to Rs. 40,000 outstanding for a quarter of an year

(d) None of the above

77. Discount allowed on the issue of shares of debentures is shown in :

(a) Profit and Loss Appropriate A/c (b) Assets side of the Balance Sheet

(c) Liabilities side of the Balance Sheet (d) None of the above

78. When preferences shares are redeemed out of profits otherwise available for dividend, a sum equal to

the nominal amount of the shares must be transferred to:

(a) Capital Reserve (b) Sinking Fund

(c) Capital Redemption Reserve (d) None of these

79. With reference to analysis and interpretation of financial statements, dividing average debtors by net

sales and multiplying the result by 365 would result into:

(a) Debtors turnover ratio (b) Collection period ratio

(c) Return on sales ratio (d) None of these



Index

S.

NO. Chapter Page No.

No. of M.C.Q.

General

M.C.Q.

Previous

Year

PGT

Commerce

Previous

Year

M.Com

Previous

Year

N.E.T.

Total

1

Issue, Forfeited and Reissue

of Forfeited Shares 10-43 31 7 11 6 55

2 Redemption of Preference

Shares 44-51 6 1 5 3 15

3 Buy –Back of Equity Shares 52-55 - 1 2 - 3

4 Issue of Debentures 56-70 15 3 4 1 23

5 Redemption of Debentures 71-84 5 1 2 1 9

6 Profit and Loss Prior to

incorporation 85-87 - 2 - 2 4

7 Final Accounts of Companies 88-104 - 8 9 9 26

8 Accounting for

Amalgamation 105-122 12 - 7 3 22

9 Internal Reconstruction 123-127 12 - 2 3 17

10 Holding Company Accounts 128-134 2 - 1 7 10

11 Valuation of Goodwill 135-141 - - - - -

12 Valuation of Shares &

Intangible Assets 142-146 2 - 2 2 6

13 Ratio Analysis 147-171 56 10 10 28 104

14 Cash Flow Statement 172-188 5 3 6 10 24

15 Financial Statements Analysis 189-193 - - 1 1 2

16 Fund Flow Statement 199-201 - 3 1 9 13

Total 146 39 63 85 309



Company: -

As per section 2 (20) of companies Act 2013 “company” means a company incorporated under this Act or

under any previous company law. A company is an artificial person existing in the eyes of law and distinct

from its members. It has a Share Capital divided into “shares”; the owner of this share is called member

or Shareholder of the company

Meaning of Share Capital: -

Share capital means the capital raised by a company by issue of Shares. The amounts invested by the

shareholders towards the face value of shares are collectively known as Share Capital. The share capital

of a company limited by shares shall be of two kinds, namely:-

(a) Equity share capital

(i) With voting rights; or

(ii) With differential rights as to dividend, voting or otherwise in accordance with such rules as may

be prescribed; and

(b) Preference share capital:

From accounting point of view, Share Capital can be classified as follows: -

Authorized Share Capital (10,000 Share of Rs. 100 each)

Issued Share Capital (8,000 Share of Rs. 100 each)

Called Up Share Capital (7,000 Shares of Rs. 80 each)

Paid Up Share Capital (6,500 Shares of Rs. 80 each)

Subscribed Share Capital (7,000 Shares or 10,000 Share of Rs. 100)

Reserve Capital

Uncalled amount of

share (7,000 Shares of Rs. 20 each)

Chapter 1

Issue, Forfeited and Reissue of Shares

Companies Act 2013 consists 29 Chapter, 470 sections & 7 schedules



1. Authorized Share Capital: – As per section 2 (8) of companies Act 2013 “authorized

capital” or “nominal capital” means such capital as is authorized by the memorandum of a company

to be the maximum amount of share capital of the company. It is also known as Registered Capital of

a company. It is stated in the Capital Clause of the Memorandum of Association of the company. It is

the maximum capital of the company. A company normally cannot raise more capital than it is

authorized by its Memorandum of Association. It is shown in the Balance Sheet at face value.

2. Issued Share Capital: – As per section 2 (50) of companies Act 2013 “issued capital” means

such capital as the company issues from time to time for subscription. Issued share capital is a part of

authorized share capital which is issued or offered by the company for subscription. Issued share

capital cannot exceed the company‟s authorized share capital. Issued capital means and includes the

nominal value of shares issued by the company for:

(i) Cash, and

(ii) Consideration other than cash to:

Promoters of a company; and

Others

It is also shown in the balance sheet at nominal value.

The remaining portion of the authorized capital which is not issued either in cash or

consideration may be termed as „Un-issued Capital‟. It is not shown in the balance sheet.

3. Subscribed share capital: – As per section 2 (86) of companies Act 2013 “subscribed

capital” means such part of the capital which is for the time being subscribed by the members of a

company. Subscribed share capital is that part of issued share capital, which is applied by public or

other persons for subscription. It also includes the face value of shares issued by the company for

consideration other than cash.

4. Called up share capital: – As per section 2 (15) of companies Act 2013 “called-up capital”

means such part of the capital, which has been called for payment. Called- up share capital is the

amount of nominal value of share that has been called-up by the company for payment by the

subscribers towards the share. The balance, which the company has decided to demand in future, is

called Uncalled Capital.

5. Paid– up Capital: – As per section 2 (64) of companies Act 2013 “paid-up share capital” or

“share capital paid-up” means such aggregate amount of money credited as paid-up as is equivalent

to the amount received as paid up in respect of shares issued. Paid up capital is a part of a capital

that the members of the company have paid. To calculate paid up capital, the amount of installment

in arrear is deducted from called up capital.

In Balance Sheet, called up capital and paid up capital are shown together.

6. Reserve Capital: - 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. Reserve Capital is kept for its future contingencies.

Reserve Capital can be used at the time winding up of the company.

Reserve Capital is different from Capital Reserve, Capital reserve are part of “Reserve and surplus” and

refer to those reserve which are not available for declaration of dividend. This reserve may be used to

write off capital losses such as discount on issue of shares. These can also be used bonus shares of

condition, that reserve is realized in cash. Thus, reserve capital which is portion of the uncalled capital to

be called up in the event of winding up of the company is entirely in nature from capital reserve which is

created out of capital profit only.

Presentation of Share Capital in the Balance Sheet

Particulars Notes Rs.

I EQUITY AND LIABILITIES

1. Shareholders’ Fund:

(a) Share capital



Notes to Accounts of Share Capital

Liabilities Rs. Rs.

Share Capital Authorised Share Capital

----------------Equity Shares of Rs. ------ each xxxx

----------------Preference Shares of Rs. ------ each xxxx

Issued Share Capital

---------------Equity Shares of Rs. ------each xxxx

---------------Preference Shares of Rs. ------ each xxxx

Subscribed Share Capital

---------------Equity Shares of Rs. ------each xxxx

---------------Preference Shares of Rs. ------ each xxxx

Called up and Paid up Share Capital (See Note) -----Equity Shares of Rs. ----- each, Rs. ----- Per Share Called Up xxxx

-----Preference Shares of Rs. -----each, Rs. ---- Per Share Called Up xxxx

Less: Calls unpaid (Calls in Arrear)

(a) By Directors Rs. xxxx

(b) By Others Rs. xxxx xxxx

Add Forfeited shares xxxx xxxx

Note: - If Shares are forfeited than such No. of Share are deducted from Subscribed Capital

Q.1

The maximum capital beyond which a company is not allowed to raise funds, by issue of shares is its –––

(a) Issued Share Capital (b) Reserve Share Capital

(c) Authorized Share Capital (d) Subscribed Shares Capital

Q.2

Which of the following should be deducted from the called – up shares capital to find out paid–up

capital?

(a) Calls-in-advance (b) Calls-in-arrears

(c) Shares forfeited (d) Discount on issue of shares

Q.3

Reserve Capital means -

(a) Part of Subscribed uncalled Capital

(b) Accumulated Profit

(c) Part of Capital Reserve

(d) Part of Capital Redemption Reserve

Q.4

Capital Reserve is

(a) Created out of Revenue profit (b) Created out of capital profit

(c) Used for meeting Revenue losses (d) Used for manipulating profit and loss

Q.5

Reserve Capital is:

(a) That part of uncalled capital which has to be called up in the event of winding up of the company.

(b) Same as Capital Reserve

(c) Created out of Revenue Profit

(d) Created out of Capital Profit

Forfeited shares Account is added to the paid up share capital under the head Share Capital of

the head Shareholders‟ fund in the Equity and Liability part of the Balance Sheet.



Meaning of Shares: -

According to Section 2(84) of the Companies Act 2013, a Share means a share in the share capital and

includes stocks. Total Capital of a company is divided into units of small denomination called a Share.

Type of shares

Shares issued by a company can be divided into following categories:-

Equity shares:

Equity shares are those shares, which are not preference shares. It means that they do not enjoy any

preferential rights in the matter of payment of dividend or repayment of capital. The rate of dividend on

equity shares is recommended by the Board of directors and may vary from year to year. Rate of

dividend depends upon the dividend policy and the availability of profit after satisfying the rights of

preference shareholders. These shares carry voting rights. Companies Act, 2013 permits issue of equity

shares capital with differential rights as to dividend, voting or otherwise.

A company can issue the shares either

(1) For cash or

(2) For consideration other than cash

Preference shares:

According to section 43 of the companies Act 2013, person‟s holdings preference shares, called preference

shareholders are assured of a preferential dividend at a fixed rate during the life of the company. They

also carry a preferential right over other shareholder to be paid first in case of winding up of the

company. Thus they enjoy preferential rights in the matter of:

(a) Payment of dividend and

(b) Repayment of capital

Generally, holders of these shares do not get voting rights. Companies use this mode financing as it is

cheaper than the rising debt. Dividend is generally cumulative in nature and need not be paid every year

in case of deficiency of profit. The Companies Act, 2013 prohibits the issue of any preference shares

which is irredeemable. Preference shares are cumulative and non-participating unless expressly stated

otherwise

Type of Preference shares

(a) Cumulative preference shares: - A cumulative preference shares is one that carries the right to

a fixed amount of dividend or dividend at a fixed rate. Such a dividend is payable even out of future

profit if current year‟s profit are insufficient for the purpose. This means that dividend on these

shares accumulates unless it is paid in full and, therefore the shares are called Cumulative

No. of Shares

Share Capital

Share

Share

Share

Units

According to Section 43 of the Companies Act 2013 a company may issue following two types of

Shares:

(a) Equity Shares

(i) With voting rights; or

(ii) With differential rights as to dividend, voting or otherwise in accordance with such

rules and subject to such conditions as may be prescribed.

(b) Preference Shares



preference shares. The arrears of dividend then show in the balance sheet as a contingent liability.

In India, a preference shares is always cumulative unless otherwise stated.

In case, the dividend remains in arrears for a period of not less than two years, holders of such

shares will be entitled to take part and vote on every resolution on every matter in the generally

body meeting of the shareholders

It is noted that all preference shares are cumulative, unless expressly stated to be otherwise.

(b) Non-cumulative preference shares: - A non-cumulative preference shares carries with it the

right to a fixed amount of dividend. In case no dividend is declared in a year due to any reason, the

rights receive such dividend in for that period is expires. It implies that holder of such a share is not

entitled to arrears of dividend in future.

In case the dividend remains in arrears for a period of not less than two years or an aggregate

period of not less than three years comprised in the six years ending with the expiry of the financial

year, holders of such shares will be entitled to take part and vote on every resolution at any meeting

of the shareholders

(c) Participating preference share:- Notwithstanding the right to a fixed dividend, this category

of preference shares confers on the holder the right to participate in the surplus profit, if any after

the equity shareholders have been paid dividend at a stipulated rate similarly, in the event of

winding up of the company, this type of shares carries the right to receives a pre-determined

proportion of surplus as well once the equity shareholders have been paid off

(d) Non-participating preference shares: - A shares on which only a fixed rate of dividend is paid

every year, without any accompanying additional rights in profit and in the surplus on winding –up,

is called Non-participating preference shares. Unless otherwise specified, the preference shares are

generally non-participating

(e) Redeemable preference shares: - These are shares that a company may issue on the condition

that the company will repay after the fixed period or even earlier at company‟s discretion. The

repayment on these shares is called redemption and is governed by section 55 of the companies Act,

2013. In India companies can now issue only this category of preference shares.

(f) Non-redeemable preference shares: - The preference shares which do not carry with them the

arrangement regarding redemption are called Non-redeemable preference shares. 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.

(g) Convertible Preference Shares:- these shares give the right to the holder to get them converted

into equity shares at their option according to the terms and conditions of their issue

(h) Non-convertible Preference Shares: - When the holders of a preference shares has not been

conferred the right to get his holding converted into equity shares, it is called Non-convertible

preference shares. Preference Shares are non-convertible preference shares. Preference shares are

non-convertible unless otherwise stated.

Dividend: - It means periodical Payment made by a Company to its Shareholder by way of

return to their Investments out of divisible profits. It is calculated on “Paid –Up

Value of Share Capital” or “Issued Capital less Calls in Arrear (if any)” at

the prescribed rate. (Dividend is not allowed on Calls in Advance)

Unless expressly stated every preference share is

Cumulative

Non participative

Redeemable



Q.6

Consider the following data pertaining to Innovative Ltd. as on 31st March 2016

Shares Capital:

Issued subscribed called-up capital (20,000) shares of Rs. 100 each Rs. 20,00,000

Calls in arrears Rs. 10,000

Profit and loss Account (Cr.) as on April 01. 2008 Rs. 67,000

Profit for the year Rs. 1,90,610

The company wants to create a Debentures Redemption Reserve and to transfer Rs. 50,000 every

year out of profit to redeem the debentures

The company declared 10% dividends

The amount of dividend declared =?

(a) Rs. 1,00,700 (b) Rs. 2,25,761 (c) Rs. 1,99,000 (d) Rs. 2,00,000

Q.7

Following are the information related to G Ltd

(i) Equity shares capital Paid up = Rs. 2,85,000

(ii) Call in advance = Rs. 10,000

(iii) Calls in arrears = Rs. 15,000

(iv) Proposed dividend = 20%

Q.8

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) Calls in advance = Rs. 40,000

(iv) Proposed dividend 15%

Q.9

The authorized capital of M Ltd consists of both cumulative preference shares and equity shares. Each

5% cumulative preference shares has a par value Rs. 100. Each equity shares has a par value Rs. 10. At

the end of the year 2009-10 and 2010 – 11, the cumulative preference shares capital balance was Rs.

2,00,000 and the equity shares capital balance was Rs. 5,00,000.

If dividend declarations totalled Rs. 8,000 and Rs. 15,000 in the year 2009-10 and 2010-11 respectively,

the dividends allocated to the preference shares holders in the year 2010 – 11 = ?

(a) Rs.3,000 (b) Rs. 5,000 (c) Rs. 10,000 (d) Rs. 12,000

Q.10

The authorized capital of M Ltd consists of both cumulative preference shares and equity shares. Each

5% cumulative preference shares has a par value Rs. 100. Each equity shares has a par value Rs. 10. At

the end of the year 2009-10 and 2010 – 11, the cumulative preference shares capital balance was Rs.

2,00,000 and the equity shares capital balance was Rs. 5,00,000.

If dividend declarations totalled Rs. 8,000 and Rs. 15,000 in the year 2009-10 and 2010-11 respectively,

the dividends allocated to the equity shares holders in the year 2010 – 11 = ?

(a) Rs.3,000 (b) Rs. 5,000 (c) Rs. 10,000 (d) Rs. 12,000

Q.11

A Preference shares which carry the right participating in the surplus left after paying equity

dividend is called:

(a) Convertible preference shares

(b) Cumulative preference shares

(c) Participating preference shares




Distinction between preference shares and equity shares

Basic Preference shares Equity shares

1. Right to Dividend Dividend is paid on preference

share before it paid on equity

shares

Dividend is paid on equity shares after it

is paid on preference shares

2. Rate of Dividend Rate of dividend is fixed Rate of dividend is decided by the Board

of directors, every year. It is thereafter,

approved by the shareholders

3. Convertibility Preference shares may be

converted to equity shares, if the

term of issue provided so.

Equity share are not convertible into any

other security

4. Redemption Preference shares may be

redeemed (refund)

A company may buy –back its equity

shares

5. Voting Rights Preference shareholders have

voting rights only in special

circumstance.

Equity shareholders have voting rights in

all circumstance

6. Refund of Capital On winding up, preference shares

capital is repaid before equity

shares capital is paid

On winding up, equity shares capital is

repaid after all liabilities including

preference shares capital is paid.

7. Right to

Participate in

Management

Preference shareholder do not

have the right to participate in

the management of the company

Equity shareholders have the right to

participate in the management of the

company.

A company may issue its Shares in any of the following three ways: –

Face Value/ Nominal Value of Shares: – Value which is written on the Face of Shares

Certificates is called Face value of Shares.

Issue Price of Shares: – Price which Collect by the company from the public for its shares is

called Issue price of Shares. It is the Consideration of issue of Shares

Issue of Shares at Par: – When shares are issued at its Face Value it is called Shares issued at Par. In

this case Face Value of share is equal to its issue Price

=

Issue of Shares at Premium [Section 52]: – When shares are issued at more than its Face Value it

is called issue of shares at Premium. A company can charge any amount as premium money. It depends

on the goodwill of the company to charge the amount of premium.

= s

Premium = [Issue Price – Face Value] = 15 – 10 = Rs. 5

According to Section 52 (2) of the companies Act, the amount of Securities Premium A/c

can be used for the purpose of

In issuing fully paid Bonus Shares to members.

In writing off the Preliminary Expenses of the Company

In writing off the expenses of or the Commission paid or Discount allowed on,

any issue of shares or Debentures of the Company.

In providing for the Premium payable on the redemption of any redeemable

Preference Shares or any Debentures of the Company

Face Value Rs. 10 Issued Price Rs.10

Face Value Rs. 10 Issued Price Rs.15

At Par At Premium At Discount

Issue Price or Face value both is same

Issued Price is more than its Face Value



To buy back own shares or other Securities as per Section 68 of the Companies

Act 2013.

Certain class of Companies as prescribed under Section 133 of the Companies Act, 2013, whose financial

statements comply with the accounting standard prescribed for them, cannot apply the securities

premium account for the purposes of In writing off the Preliminary Expenses of the Company

and In providing for the Premium payable on the redemption of any redeemable

Preference Shares or any Debentures of the Company

Issue of Shares at Discount: – When shares are issued at less than its Face Value it is called issue of

shares at Discount. Section 53 of the Companies Act 2013 prohibits the issue of shares other than sweat

equity shares at discount. Any shares issued by the company at a discounted price shall be void except as

provided in Section 54, for issue of Sweat Equity Shares.

=

Discount = [Face Value – Issue Price] = 10 – 9 = Rs.1

As per section 2 (88) of companies Act 2013 “sweat equity shares” means such equity shares as are issued

by a company to its directors or employees at a discount or for consideration, other than cash, for

providing their know-how or making available rights in the nature of intellectual property rights or value

additions, by whatever name called.

Q.12

The excess price received over the par value of shares, should be credited to

(a) Calls-in-advance (b) Shares Capital Account

(c) Reserve capital Account (d) Security Premium Account

Q.13

The maximum amount that can be collected as premium as a percentage of face value = ?

(a) 20% (b) 30% (c) 40% (d) Unlimited

Q.14

The security premium amount may be utilized by a company for –––––––––

(a) Written off any loss on sale of fixed assets

(b) Written off any loss of revenue nature

(c) Payment of dividends

(d) Written of the expenses / discount on the issue of debentures

Q.15

The security premium account should be shown under-

(a) Share Capital (b) Current Liability

(c) Current Assets (d) Reserve and Surplus

Q.16

According to Section 55 (2) of the Companies Act, the amount in the securities premium Account can be

used for the purpose of:-

(a) Issue of fully paid bonus shares (b) Writing off preliminary expenses

(c) Both (a) & (b) (d) None of the above

Q.17

Which of the following signifies the difference between par value and an issue price above par?

(a) Security Premium (b) Discount on issue of shares

(c) Calls in arrear (d) Calls in advance

Prospectus

Documents inviting offers from public to subscribe for the debenture or shares or deposits of a body

corporate is known as prospectus. As per section 39(3) of the Act, the requirement is 30 days from the

date of issue of prospectus and minimum subscription is 90 % of the entire issue.

Face Value Rs. 10 Issued Price Rs.9 Issued Price is less than its Face Value



Q.18

The documents inviting offers from public to subscribe for the debentures or shares or deposits of a body

corporate is known as –––––––––

(a) Shares certificate (b) Stock invest

(c) Fixed deposit receipt (d) Prospectus

Minimum Subscription Section 39 (1)

A public limited company cannot make any allotment of shares unless the company receives minimum

subscription which is stated in prospectus. The amount minimum subscription which is disclosed in the

prospectus by the Board of Directors after taking effect of followings:-

1. Preliminary Expenses of the company

2. Commission Payable on issue of shares

3. Cost of Fixed Assets purchased or to be purchased

4. Working Capital Requirement of the company

5. Any other expenditure for the day to day operation of the business.

Section 39(3) of the Companies Act says that the company should have receive a minimum

of 90% subscription within 30 days of the issue of prospectus or such other period as may

be stated in SEBI guidelines.

As per Securities Exchange Board of India (SEBI) a company must receive a minimum of 90

% subscription against the entire issue before making any allotment of Shares or

Debentures to the public

If the company does not receive the minimum subscription the entire subscription will be refunded to the

applicants within 15 days after the date of closure of the issue (the last date for filling applications) in case

of non –underwritten issue and 7 days after the date of closure of the issue in case of underwritten issue.

In Case of delayed refund, interest for the delayed period as per section 73 of Indian Companies Act will

apply.

A company can issue its Share for “Cash” or “For Consideration other than Cash”:

Way of Issue of Shares

Company can collect money either in

For Cash (Shares are issued and Cash is received)

For Consideration other Than Cash Shares are issued but Cash is not received

1When shares are issued for Purchase of Fixed Assets

2 When shares are issued for Purchase of a Business

3When shares are issued to Promoters

Lump sum In Installments

At Application At Allotment At Calls

First

Call

Third and

Final Call

Second

Call



Journal Entry when a company collects money in Lump Sum:–

When Shares are issued “at Par”

When Application Money Received: – Bank A/c……………………………………..Dr.

To Share Application & Allotment A/c

X

When Shares are Allotted and application money transferred to Share Capital A/c

Share Application & Allotment A/c………………..Dr.

To Share Capital A/c

X

When Shares are issued “at Premium”

When Application Money Received: –

Bank A/c………………………………..……..Dr.

To Share Application A/c

X


Share Application A/c…………………………….…..Dr.


X

To Securities Premium A/c X

When Shares are issued “at Discount”

When Application Money Received: – Bank A/c……………………………………..……..Dr.


X


Share Application A/c………………………….Dr.

Discount on Issue of Shares A/c………………Dr. (No of Shares issued × Rate of

Discount per Share) To Share Capital A/c X

Issued at Par Issued at Discount Issued at Premium

Bank A/c……….……………………………...Dr.


Bank A/c……….…………………………………Dr.

Discount on Issue of Shares A/c………Dr.


Bank A/c……….……………………………...Dr.


To Security Premium A/c

Total No. of Shares applied Issued Price per Share

No. of Share issued Face value of each Share

No. of Share issued

Premium Value of each share



No. of Share issued Face value of each Share

No. of Share issued Issued Price per Share



Q.19

(i)

I Ltd. issued 20,000 equity shares of Rs.10 each at par on 1st April 2011. The whole of the amount was

payable on application. The public applied for all the shares by 31st July 2011 and shares were allotted on

20th

August. The Cost of issue of Shares is Rs. 5,000. Pass the necessary journal entry in the books of the

company.

In the books of I Ltd.

Journal Entry

Date Particulars L.F Dr.(Rs.) Cr.(Rs.)

2011

31st July

Bank A/c Dr.


2,00,000

2,00,000

20th

August

Share Application A/c Dr.


2,00,000

2,00,000

20th

August

Cost of issue of Shares A/c Dr.

To Bank A/c

5,000

5,000

(ii)

I Ltd. issued 20,000 equity shares of Rs.10 each at a premium of Rs. 5 per share on 1st April 2011. The

whole of the amount was payable on application. The public applied for all the shares by 31st July 2011

and shares were allotted on 20th

August. Pass the necessary journal entry in the books of the company.


Journal Entry


2011

31st July

Bank A/c Dr.


3,00,000

3,00,000

20th

August




3,00,000

2,00,000

1,00,000

(iii)

I Ltd. issued 20,000 equity shares of Rs.10 each at a discount of 10% on 1st April 2011. The whole of the

amount was payable on application. The public applied for the entire share by 31st July 2011 and shares

were allotted on 20th

August. Underwriting Commission amounted to Rs. 2,000 is paid by the company.

Pass the necessary journal entry in the books of the company.


Journal Entry


2010

31st July

Bank A/c Dr.


1,80,000

1,80,000

20th

August


Discount on issue of Share A/c Dr.


1,80,000

20,000

2,00,000

20th

August

Underwriting Commission A/c Dr.

To Bank A/c

2,000

2,000

Journal Entry for “Underwriting Commission”

Case I:- If it is paid in Cash

Underwriting Commission A/c…………… Dr.

To Bank A/c

Case II:- If it is paid in terms of Shares

Underwriting Commission A/c……………. Dr.


Underwriting Commission & Expenses on Issue of Shares are adjusted from Security Premium

Account if and if there is a balance then balance amount is shown under the sub heading Other

Current Assets main heading Current Assets in Assets Side of the Balance Sheet



Journal Entry when a company collects money in Installments:–

When Shares are issued “at Par”

At Application

At Allotment

At Calls

When Application Money Received: – Bank …………………………….Dr.


(Being Application Money Received)

When Shares are Allotted and Application

money is transferred to Share capital A/c Share Application A/c………………….Dr.


(Being Shares allotted and application money transferred to share

capital A/c

When Allotment money is due: –

Share Allotment A/c……………………..Dr.


When Allotment money is received: –

Bank A/c ………………………………..Dr.

To Share Allotment A/c

When Calls money Received: –

Bank A/c ………………………………..Dr.

To Share Calls A/c

When Calls money due: –

Share calls A/c ……………………………..Dr.




Q.20

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 shares as per the Companies Act, 2013 =?

Q.21

T Ltd. proposed to issue 6,000 equity shares of Rs. 100 each at par. The minimum amount of application

money to be collected per shares as per the Companies Act, 2013 =?

Q.22

As per the SEBI guidelines, on issue of shares, the application money should not be less than

(a) 2.5% of the nominal values of shares

(b) 2.5 % of the issue price of shares

(c) 25.0% of the nominal value of shares

(d) 25.0% of the issue price of shares

Rules Regarding Application and Allotment Money

As per Sec.39 of the Companies Act 2016, Application Money

must be at least 5 % of the Face Value of the Shares

However as per SEBI guidelines, the minimum application

moneys to be paid by an applicant along with the application

money shall not be less than 25% of the issue price.

If the company does not have its own Articles of Association

or the Article of Association does not have a Clause to this

effect, Table F of the Companies Act 2016 will apply. Table F

has following Provisions

A period of one month gap must be held between two

Calls

The amount of one call should not be more than 25% of

the Face value of the Share

A notice of 14 days period should be given to the

Shareholder to pay the amount.

Calls should be on uniform basis on all Shares within the

same Class



Shares are issued “at Premium”

If Question is silent that when premium money is collected from the Shareholders, then

it is assumed that it is collected at the time of Allotment of Shares

When Premium Money is collected at the time of Allotment:–

When Allotment Money is due along with premium money :–

Share Allotment A/c…….Dr. ×

To Share Capital A/c ×

To Securities Premium A/c ×

When Allotment Money is Received along with premium money: –

Bank A/c……………………………………..Dr. To Share Allotment A/c

×

When Premium Money is collected at the time of Application:–

When Application Money is Received along with premium money: –

Bank A/c……………………………………..Dr.


×

When Shares are Allotted and Application money is transferred to Share Capital

and securities premium A/c :–

Share Application A/c……………………………….Dr.


×

To Securities Premium A/c ×

No. of Share Allotted Face value for Allotment of each Share

No. of Share Allotted


No. of shares on which allotted money received

Rate of Allotment including Premium if any

Total No. of Shares Applied

No. of Share issued Face value for Application of each Share

No. of Share issued


No. of shares Allotted

Price Received for Allotment of each Share

Premium on Issue of Shares is the Profit for the Company and so it is shown under

the head Reserve and Surplus in the Equity & Liabilities side of the Balance Sheet

Rate of Application including Premium if any



Calls in Arrear: –

When some Shareholder did not paid or deposited his money due either on Allotment or on

any calls, this due amount which is not deposited by shareholders is called Calls in Arrear.

Accounting Treatment of Calls – in – Arrear:–

(i) Without opening Calls in Arrear A/c

(ii) By opening Calls in Arrear A/c

For example :- A company issued 20,000 shares @ Rs.10 each, Rs.3 on Application Rs.2 on Allotment,

Rs.3 on First Call and Rs.2 on Final Call. Mr. Shyam a shareholder of 500 shares did not pay allotment,

first call and final call money Mr. Ram another shareholder of 1,000 shares did not pay final call money.

Application

Allotment

First Call

Final Call

Bank A/c…Dr. 60,000

To S P 60,000

SA ………Dr. 40,000

To SC 40,000

S First Call...Dr. 60,000

To S. capital 60,000

(Due entry will made for

Total No. of Shares)

S Final Call...Dr. 40,000

To S. Capital 40,000

(Due entry will made

for Total No. of Shares)

SP ………Dr. 60,000

To SC 60,000

Bank………Dr. 39,000

To SA 39,000

(40,000 –1,000)

or

Bank……… Dr. 39,000

Call in Arrear ..Dr.1,000

To SA 40,000

Bank………Dr. 58,500

To S First Call 58,500

(60,000 –1,500)

or

Bank……… Dr. 58,500

Call in Arrear..Dr.1,500

To S First Call 60,000

Bank………Dr. 37,000

To S Final Call 37,000

(40,000 –3,000)

or

Bank……… Dr. 37,000

Call in Arrear...Dr. 3,000

To S Final Call 40,000

(Due entry will

made for Total

No. of Shares)

(Due entry will

made for Total

No. of Shares)

Note: – The Company is authorized to charge Interest on Calls –in – arrear from Due Date to Date of

Payment of arrear. The Rate of Interest on Calls –in – Arrear is given in Article of Association of the

company. But when Article of Association of the company is silent,

Journal Entry in case of Calls in Arrear:–

When Calls in Arrear Received Bank A/c……………………………….Dr.

To Calls in Arrear A/c

Interest on Calls in Arrear:-

Articles of Association generally specify the rate of interest, payable on calls-in arrears.

In the absence of specific rate “Table F of schedule 1 of Companies Act 2013 applies

which authorized the directors to charge interest not exceeding 10% p.a.” However, the

Directors have the right to waive the interest on Calls-in- Arrears.



Rules of Calculating Interest on Calls-in – Arrear:–

Interest = Amount of Arrear × Rate of Interest × Time

Time for First call = to

Time for Second call = to

When Interest on Calls in Arrear is due

Sundry Members A/c ………………..Dr.

To Interest on Calls in Arrear A/c

When Interest on Calls in Arrear is received:–

Bank A/c ……………………….Dr.

To Sundry Members A/c

At the end of Accounting year “Interest on Calls in Arrear” is transferred to Profit and

Loss A/c

Interest on Calls in Arrear A/c…….Dr.

To Profit and Loss A/c

Calls in Advance :–

When a company accepts money paid before due of by its shareholders its calls it is called Calls in

Advance. It may be arise in case of Pro-rata Allotment or when some shareholders paid its due money of

calls either at application stage or Allotment stage

Journal Entry in case of Calls in Advance:–

When Calls in Advance Received ( at the time of Receive) Bank A/c……………………………….Dr.

To Calls-in-advance A/c

When Calls in Advance money adjusted towards respective calls A/c

Calls-in-advance A/c ………………….Dr.

To Respective Calls A/c

Interest on Calls in Advance:–

In case of Calls in Advance the company must pay interest at the rate stated in its Article of Association.

But when the Articles of Association of the company is silent, “Table F of schedule 1 of Companies

Act 2013 applies” which leaves the matter to the Board to a maximum rate of 12% p.a. It can be paid

out of capital also.

Due date of first Call Date of Payment of Arrear

Due date of Second Call

Date of Payment of Arrear



Rules of Calculating Interest on Calls-in – Advance:–

Interest = Amount of Advance × Rate of Interest × Time

Time for First call = to

Time for Second call = to

When Interest on Calls in Advance is paid in cash:–

Interest on Calls in Advance A/c…………….Dr.

To Bank A/c

When Interest on Calls in Advance is not yet paid or outstanding:–

Interest on Calls in Advance A/c …………….Dr.

To Outstanding Interest A/c

At the end of Accounting year “Interest on Calls in Advance” is transferred to Profit

and Loss A/c

Profit and Loss A/c…….Dr.

To Interest on Calls in Advance A/c

Q.23

The interest on calls-in-advance is paid for the period from the ––––––––––-

(a) Date of receipt of application money to the date of appropriation

(b) Date of receipt of allotment money to the date of appropriation

(c) Date of receipt of calls-in-advance to the date of appropriation of the call

(d) Date of appropriation to the date of dividend payment

Q.24

The Director of E Ltd. made final call of Rs. 30 per share on May 15, 2011 including the last date of

payment of call money to be May 31, 2011. Mr. F, holding 5,000 shares paid the call money on July 15,

2011.

If the company adopts Table F, the amount of interest on calls-in-arrears to be paid by Mr. F = ?

Q.25

The subscribed share capital of S Ltd. is Rs. 8,00,000 of Rs. 100 each. There were no calls in arrear till the

final call was made. The final call made was paid on 7,750 shares. The calls in arrear amounted to Rs.

6,250. The final call per shares = ?

(a) Rs. 25 (b) Rs. 7.80

(c) Rs. 20 (d) Rs. 62.50

Q.26

IJK Ltd. issued 20,000 shares of Rs. 10 each at a premium of Rs.2 on May 01, 2009, payable as follows;

On application Rs. 4.50 (inclusive of premium)

On Allotment Rs. 2.50

On First and final call Rs.5.00

Mrs. M, to whom 1,000 shares were allotted, has paid Rs. 5,000 on June 01, 2009. At the time of remitting

the allotment money, she indicated that the excess money should be adjusted towards the call money. The

directors of the company made the first and final call money. The directors of the company made the first

call on October 31, 2009. The company has a policy of paying interest on calls-in-advance. The amount of

interest paid to Mrs. M on calls in advance =?

(a) Rs. 62.50 (b) Rs. 52.08 (c) Rs. 125.00 (d) Rs. 150.00

Date of Payment of Advance Due Date of Payment

Date of Payment of Advance

Due Date of Payment



Under Subscription of Shares

The Shares are said to be under Subscribed if No. of Shares applied for is less than No.

of Shares offered to public for issue.

Accounting Treatment: – In Case of under Subscription All Accounting Entries are made on the

basis of shares applied. In Case of Under Subscription allotment is made in full to all the applicants.

No. of Shares offered by the company = 50,000

No. of Shares Applied by the public = 45,000

In this Case All Entry in regard of

Application

Allotments and

Calls are made for 45,000 Shares.

Oversubscription of Shares

Meaning of Over-subscription:–Shares are said to be over-subscribed when number

of shares “applied for” is more than the number of shares “offered for subscription”. A

company cannot allot Shares more than those offered for subscription.

Example of Over-subscription:–

No. of Shares offered by the company =50000

No. of Shares Applied by the public= 70000

Company cannot issue more than 50000 shares which it offered to the public

Alternative available to the company:–

Alternative available with the company

Over-subscription

Refund the All Excess

Applications

Make the Pro- rata

Allotment to All

Applications

Refund the some

Applications and Make the

Pro- rata Allotment to

remaining Applications

Allotted 50000 Shares who

applied for 50000 Shares

in full And Refund 20000

Shares in full

Applies Allotted

50,000 50,000

20,000 Nil

Allotted 50,000 Shares

on the Pro-rata basis to

all 70000 Shareholder

Applies Allotted

70,000 50,000

Allotted 40,000 Shares on

the Pro-rata basis to 50000

Shareholder and allotted

10000 who applied for

10000 in full and Refund

10000 Shares in full

Applies Allotted

50000 40000

10000 10000

10000 Nil

3 Applications

2 Allotments

3 First Call

2 Final Call



1 2 3 4 5 6 7

8

Shares

Applied

Shares

Allotted

Application

Money

Received

Shares

Allotted

and

application

money

transferred

to share

capital A/c

Excess Excess

money

Adjusted

in

Allotment

A/c

If still excess money

then adjusted in call

(First Call Second

call etc.)

Calls in

Advance

Refund

Shares

Applied ×

Rate of

Application

Shares

Allotted ×

Rate of

Application

(3) – (4) Shares

Allotted ×

Rate of

Allotment

Shares Allotted x Rate

of First call

Shares Allotted × Rate

of Second call

50,000 40,000 1,50,000 1,20,000 30,000 30,000

10000 10,000 30,000 30,000

10000 Nil 30,000

30,000

In Case of oversubscription of Shares

1. Calculation of Amount due on Allotment

Total No. of Shares Applied xxxx

Total Money Received on Application ( Total No. of Shares

Applied × Rate of Application)

xxxx

[1]

Total Application Money Required ( Total No. of shares

Allotted × Rate of Applications

xxxx

[2]

Excess Application Money xxxx [3] = [1] – [2]

Total Money due on Allotment ( No. of Shares Allotted ×

Rate of Allotment)

xxxx

[4]

Amount Due but not paid on Allotment xxxx

[4] – [3]

2. Calculation of Total No. of Shares Applied When Allotted No. of Shares are given

3. Calculation of Total No. of Shares Allotted When Applied No. of Shares are given

Easy Rules of Calculating No. of Shares Applied or Allotted

= 𝐓𝐨 𝐛𝐞 𝐅𝐢𝐧𝐝 (𝐀𝐩𝐩𝐥𝐢𝐞𝐝 𝐨𝐫 𝐀𝐥𝐥𝐨𝐭𝐞𝐝)

𝐀𝐧𝐨𝐭𝐡𝐞𝐫 × Shares Applied or Shares Allotted

𝑻𝒐𝒕𝒂𝒍 𝑵𝒐.𝒐𝒇 𝒔𝒉𝒂𝒓𝒆𝒔 𝑨𝒍𝒍𝒐𝒕𝒆𝒅 𝒊𝒏 𝒕𝒉𝒂𝒕 𝒄𝒂𝒕𝒆𝒈𝒐𝒓𝒊𝒆𝒔

𝑻𝒐𝒕𝒂𝒍 𝑵𝒐.𝒐𝒇 𝒔𝒉𝒂𝒓𝒆𝒔 𝑨𝒑𝒑𝒍𝒊𝒆𝒅 𝒊𝒏 𝒕𝒉𝒂𝒕 𝒄𝒂𝒕𝒆𝒈𝒐𝒓𝒊𝒆𝒔 × Shares applied to that particular Shareholder

𝑻𝒐𝒕𝒂𝒍 𝑵𝒐.𝒐𝒇 𝒔𝒉𝒂𝒓𝒆𝒔 𝑨𝒑𝒑𝒍𝒊𝒆𝒅 𝒊𝒏 𝒕𝒉𝒂𝒕 𝒄𝒂𝒕𝒆𝒈𝒐𝒓𝒊𝒆𝒔

𝑻𝒐𝒕𝒂𝒍 𝑵𝒐.𝒐𝒇 𝒔𝒉𝒂𝒓𝒆𝒔 𝑨𝒍𝒍𝒐𝒕𝒆𝒅 𝒊𝒏 𝒕𝒉𝒂𝒕 𝒄𝒂𝒕𝒆𝒈𝒐𝒓𝒊𝒆𝒔 × Shares allotted to that particular Shareholder



27.

(i) Innovative Ltd. allotted 25,000 equity shares to the applicant of 36,000 shares for Rs. 10 each on pro-

rata basis. A applied for 1800 shares. Shares allotted to him are –––––––– and he had paid an

application money of Rs. 5 per shares. –––––––––is the excess amount received that can be utilized

towards allotment money:

(a) 1500 shares , Rs. 1500

(b) 1350 shares, Rs. 2,250

(c) 1250 shares, Rs. 2,750

(d) 1050 shares, Rs. 3,750

(ii) Innovative Ltd. has allotted 5,000 shares to the application of 7500 shares on pro-rata basis. The

amount of application is Rs. 3 per shares. M applied for 600 shares. The number of shares allotted

to M will be –––––––––- and the amount against allotment money from M will be ––––––––

(a) 200 shares ; Rs. 200

(b) 300 shares ; Rs. 300

(c) 400 shares ; Rs. 600

(d) 150 shares ; Rs. 450

(iii) Innovative 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

(a) 60 shares ; Rs. 120

(b) Rs. 340 shares Rs. 160

(c) Rs. 320 shares Rs. 200

(d) Rs. 300 shares Rs. 240



Issue of Shares for consideration other than Cash

1. Issue of Shares in case of Purchase of Fixed Assets:–

When Fixed Assets are purchased:-

Sundry Fixed Assets A/c (Individually)…………………………….Dr.

To Vender A/c

When Shares are issued:-

Issued at par

Issued at Premium

Vender A/c……………………………….Dr.


Vender A/c………………………………Dr.

To Share Capital A/c To Securities Premium A/c

No. of Shares to be issued =

Share Capital = No. of Shares issued × Face Value per Share

Securities Premium = No. of Shares issued × Premium Amount per Share

2. Issue of Shares in case of Purchase of Business:–

When Business are purchased:-

When Purchased Consideration given

is “more” than the “Net Assets

taken”. Here Goodwill is Arise

When Purchased Consideration given is

“less” than the “Net Assets taken”

Here Capital Reserve is Arise

Sundry Assets A……………………..Dr.

Goodwill A/c……… Dr. (Balancing Figure)

To Liabilities A/c

To Vendor A/c

Sundry Assets A…………………………..Dr.

To Liabilities A/c

To Vendor A/c

To Capital Reserve A/c (Balancing Figure).

Issued at par

Issued at Premium

Vender A/c…………………………….Dr.


Vender A/c…………………………………Dr.


To Securities Premium A/c

“Purchase Consideration” means Amount payable by Purchaser Company to

Vendor Company for purchase of the Business.



3. Issues of Shares to Promoters:–

A company may also issue fully paid shares for consideration other than cash to the

promoters for his past services. These expenses are incurred by promoters for

incorporation of company. At the time of formation of company all initial expenses are

paid by the promoter.

Journal Entry for Issue of Shares to Promoters:-

Goodwill / Cost of Incorporation A/c………………..….Dr.


Q.28

(i)

Innovative Ltd. acquired a Building for its Class Room Costing Rs. 45,00,000 from Singh Builders. The

Payment was made by issue of Equity Shares of Rs. 10 each. Pass the journal Entry in followings

alternative cases:

(i) When Shares are issued at Par.

(ii) When Shares are issued at 50% Premium.

In the books of Innovative Ltd.

Journal Entries


Building A/c Dr.

To Singh Builders A/c

45,00,000

45,00,000

Case –I When Shares are issued at Pat

Singh Builders A/c Dr.


45,00,000

45,00,000

Case-II When Share are issued at 50% Premium.

Singh Builders A/c Dr.



45,00,000

30,00,000

15,00,000

Working Note:

Number of Shares to be issued =

Case-I: - Number of shares = 45,00,000 / 10 = 4,50,000 Equity Shares.

Case-II: - Number of shares = 45,00,000 / 15 = 3,00,000 Equity Shares.

(ii)

Innovative Ltd. Purchases the business of Hi-Tec Ltd for Rs. 2,70,000 payable in fully paid shares.

Innovative Ltd. allotted equity shares of Rs. 10 each fully paid in satisfaction of the claim by Hi-Tec Ltd.

Show the necessary Journal entries in the books of Innovative Ltd. assuming that:

1. Such shares are issued at par and

2. Such shares are issued at premium of 20%

When shares are issued in both ways for cash or “Consideration other than cash”

then these shares must be separately shown under the head Issued and Subscribed

Capital in Balance Sheet




Journal Entries


Sundry Assets A/c Dr.

To Hi-Tec Ltd.

2,70,000

2,70,000

1. If Shares are issued at Par.

Hi-Tec Ltd. A/c Dr.


2,70,000

2,70,000

2. If Shares are issued at Premium.

Hi-Tec Ltd. Dr.



2,70,000

2,25,000

45,000

Working Note:

Number of Shares to be issued = Amount due to Vendors / Issue Price Per shares.

Case-I: - Number of shares = 2,70,000 / 10 = 27,000 Equity Shares.

Case-II: - Number of shares = 2,70,000 / 12 = 22,500 Equity Shares.

(iii)

Innovative Ltd. issued 25,000 fully paid up Equity shares of Rs. 100 each for the purchase of the

followings assets and liabilities from Singh Brothers.

Machinery Rs. 6,00,000 Stock in Trade Rs. 6,50,000

Land And Buildings Rs. 9,00,000 Sundry Creditors Rs. 1,00,000


Journal Entries


Machinery A/c Dr.

Land and Building A/c Dr.

Stock-in-Trade A/c Dr.

Goodwill A/c (Bal. Fig) Dr.

To Sundry Creditors

To Singh Brothers

6,00,000

9,00,000

6,50,000

4,50,000

1,00,000

25,00,000

Singh Brothers Dr.


25,00,000

25,00,000

(iv)

Innovative Ltd. Purchases a running Business from M/s Suviksha for a sum of Rs. 2,50,000

payable as Rs. 1,80,000 in fully paid equity shares of Rs. 10 each and balance in cash. The assets

and liabilities consisted of the followings.

Plant and Machinery Rs. 60,000 Buildings Rs. 1,40,000

Sundry Debtors Rs. 15,000 Stock Rs. 45,000

Cash Rs. 25,000 Sundry Creditors Rs. 20,000

You are required to pass necessary Journal Entry in the company‟s books.


Journal Entries


Plant and Machinery A/c Dr.

Buildings A/c Dr.

Sundry Debtors A/c Dr.

Stock A/c Dr.

Cash A/c Dr.

To Sundry Creditors A/c

60,000

1,40,000

15,000

45,000

25,000

20,000



To M/s Suviksha

To Capital Reserve A/c (Bal. Fig)

2,50,000

15,000

M/s Suviksha Dr.


To Bank A/c

2,50,000

1,80,000

70,000

(v)

Innovative Ltd. Issued 30,000 Equity Shares of Rs. 10 each fully paid to Promoters. Pass Journal

Entry. In the books of Innovative Ltd.

Journal Entries


Goodwill A/c Dr.


3,00,000

3,00,000

(vi)

Innovative Ltd. Issued 10,000 Equity Shares of Rs. 10 each fully paid to Underwriters as

Underwritings commission. Pass Journal Entry.


Journal Entries


Underwritings Commission A/c Dr.


1,00,000

1,00,000



Forfeiture and Reissue of Forfeited Shares

Forfeiture of Shares means “Cancellation” of shares by the company due to

nonpayment of either Allotment money or Calls money called by the company. When

the company demands money from the shareholder and shareholder did not pay the

money, company has right to forfeit these shares. But company can only excise this right

when it has authorized by his Articles of Association. After making due Notice

Company forfeited these shares.

Shares forfeited becomes the property of the company and the Directors have the

authority to reissue them at Par, at Premium or at Discount

It may be happen some times that some share -holder did not pay First call money.

In this circumstances company has right to forfeit these Shares in following

manners:-

(1) Just after nonpayment of first call money or before making next call, such as

“Second and Final Call money and

(2) May forfeit its shares after making Second and Final Call Money

Company forfeited shares after

making first Call or Final Call

Money is not yet called by

Company

Here share capital is Rs. 8

Company forfeited shares after

making Final Call Money or both

call money (First and Final) has

been called by Company

Here share capital is Rs. 10

3 Applications

2 Allotments

3 First Call

2 Final Calls

On Forfeiture Share Capital Account is always debited with the called up amount

of Share capital and not face value of Shares. When total face value is called up

then is must be debited with total face value.

3 Applications

2 Allotments

3 First Call

2 Final Calls



Entry for Forfeiture of Shares

When shares are originally issued at par and

forfeited

Share Capital A/c………………………..Dr.

To Share Forfeiture A/c


When shares are originally issued at Premium and

forfeited

Premium Money is Receive by the

Company

Premium Money is not Received

by the Company

Share Capital A/c…..….Dr.



Share Capital A/c………………...Dr.

Security Premium Reserve A/c…Dr.



Entry for Re-issue of Forfeiture of Shares

When Reissued at Par

Bank A/c ………………………………….Dr.


When Reissued at Discount

Bank A/c ……………………………….….Dr.

Share Forfeiture A/c……Dr.


When Reissued at Premium

Bank A/c ………………………….……….Dr.


To Security Premium Reserve A/c



There are two cases in Forfeiture of Shares

Case 1. When shares originally issued at Par

When shares are Forfeited:–

Share Capital A/c …….. Dr. (With the Total Called up Amount by the company)

To Share Forfeiture A/c (With the amount already received by the company)

To Various unpaid Calls / Calls in Arrear A/c (With the amount which

becomes due but not paid by shareholder)

When Forfeited Shares are reissued:–

Type 1 When it is reissued at Par

Bank A/c…………………….Dr.


Type 2 When it is reissued at Discount (But amount of discount cannot exceed from

Share Forfeiture Amount)

Bank A/c…………………….Dr.

Share Forfeiture A/c ……….Dr.


Type 3 When it is reissued at Premium

Bank A/c………………………………...Dr.


To Securities Premium A/c

Transfer of Balance of Forfeited Share A/c:- When the shares are reissued the

profit on reissue of share (if any) are transferred to Capital Reserve A/c

Share Forfeiture A/c…………………Dr.

To Capital Reserve A/c

Rules of Calculating Capital Reserve Amount:-

minus

𝐍𝐨. 𝐨𝐟 𝐒𝐡𝐚𝐫𝐞𝐬 𝐑𝐞𝐢𝐬𝐬𝐮𝐞

𝑵𝒐.𝒐𝒇 𝑺𝒉𝒂𝒓𝒆𝒔 𝑭𝒐𝒓𝒇𝒆𝒊𝒕𝒆𝒅 × Original Balance of Forfeiture A/c

Amount of forfeiture A/c

which is debited at the

time of reissue of Shares

When Two Different Categories of Shares are Reissued then Capital Reserve are

separately calculated of both Categories and then added together

[Amount of forfeiture for one share (at the time of forfeiture) minus Amount of

forfeiture for one share (at the time of reissue)] × No. of Shares reissued



Q.29

(i) Give Journal Entries relating to forfeiture and re-issue

400 shares of Rs. 10 each on which Rs. 8 per shares has been called up and Rs. 6 per shares has

been paid were forfeited. Out of these 300 shares are re-issued for Rs. 7 each as fully paid.

In the books of ……………

Journal Entries


Share Capital A/c Dr.

To Share Forfeited A/c

To Calls in Arrear A/c (Being 400 shares forfeited for non-payment of calls money)

3,200

2,400

800

Bank A/c Dr.

Share Forfeited A/c Dr.

To Share Capital A/c (Being issue of 300 forfeited shares as fully paid at Rs. 7 each)

2,100

900

3,000


To Capital Reserve A/c (Being profit on re-issue of 100 shares transferred to Capital Reserve )

900

900

(ii)

Give Journal Entries relating to forfeiture and re-issue


been paid were forfeited. Out of these 300 shares are re-issued for Rs. 7 each as Rs. 8 paid up.

In the books of …………….

Journal Entries


Shares Capital A/c Dr.



3,200

2,400

800

Bank A/c Dr.



2,100

300

2,400



1,500

1,500

(iii)



been paid were forfeited. Out of these 300 shares are re-issued for Rs. 10 each as Rs. 8 paid up.

In the books of ……………

Journal Entries





3,200

2,400

800

Bank A/c Dr.


To Security Premium Reserve A/c

3,000

2,400

600



1,800

1,800



(iv)


400 shares of Rs. 10 each Fully Called up and Rs. 6 per shares has been paid were forfeited. Out of

these 300 shares are re-issued for Rs. 7 each as fully paid.

In the books of ………….

Journal Entries





4,000

2,400

1,600

Bank A/c Dr.



2,100

900

3,000



900

900

Case 2 When shares originally issued at Premium

When shares are forfeited:–

When Premium Amount is received by the company


To Share Forfeiture A/c (With the amount already received by the company after

deducting premium amount)

To Various unpaid Calls / Calls in Arrear A/c (With the amount which becomes

due but not paid by shareholder)

Q.30

(i)Give Journal Entries relating to forfeiture and re-issue

Innovative Ltd. issued 500 shares of Rs. 10 each at a premium of Rs. 2 payable @ Rs. 3 on application,

Rs. 5 on allotment (including premium) Rs. 2 on First call and Rs. 2 on Final Call to Mr. Harish. These

shares were forfeited by the company for non- payment of first and second call. 300 of these shares

were re-issued to Mr. Amar at Rs. 8 as fully paid.


Journal Entries




To Calls in Arrear A/c (Being 500 Shares forfeited for non- payment of first and final call)

5,000

3,000

2,000

Bank A/c Dr.


To Share Capital A/c (Being re-issue of 300 forfeited shares )

2,400

600

3,000



1,200

1,200

If the premium has already been received by the company, it cannot be cancelled.



(ii)

Innovative Ltd. invited application for 1,00,000 equity shares of R. 10 each issued at a premium of 20%

payable as;- on application Rs.2;on allotment Rs.4 (including premium); on first call Rs.3; On final call

Rs. 3. 400 shares allotted to Mr. Kishore were forfeited for non-payment of first call and final call. 300 of

these shares were reissued at Rs. 8 per share as fully paid. Pass the Journal Entry for forfeiture

and re-issue of shares.


Journal Entries




To Calls in Arrear A/c (Being 400 shares forfeited for non-payment of calls money)

4,000

1,600

2,400

Bank A/c Dr.


To Share Capital A/c (Being issue of 300 forfeited shares as fully called up)

2,400

600

3,000


To Capital Reserve A/c (Being profit on re-issue of 300 equity shares transferred to capital

Reserve A/c )

600

600

When Premium Amount is due by the company but not received by the company


Securities Premium A/c…..Dr. (Premium amount originally due)

To Share Forfeiture A/c (With the amount already received by the company)

To Various unpaid Calls / Calls in Arrear A/c (With the amount which becomes

due but not paid by shareholder)

Q.31

(i) Innovative Ltd. forfeited 100 shares of Rs. 10 each issued at 10% premium on which allotment

money of Rs. 3 per share (including premium) and first call of Rs. 3 per share were not received. The

second and final call of R. 2 per shares was not yet called. 20 of these shares were re-issued as Rs. 8 paid

up for Rs. 9 per shares. Give Journal entries regarding forfeiture and re-issue of shares.

In the Books of Innovative Ltd.

Journal Entry

Date Particulars L.F Dr.(Rs.) Dr.(Rs.)


Security Premium A/c Dr.


To Calls in Arrear A/c (Bing 100 Shares forfeited for non-payment of allotment and calls money)

800

100

300

600

Bank A/c Dr.


To Security Premium A/c (Being 20 forfeited shares re-issued at Rs 8 Paid up for 9 per shares)

180

160

20



60

60

Calls in Arrear includes the amount of Securities premium which is already debited above



(ii)

Innovative Ltd. Forfeited 150 Equity Shares of Rs. 10 each issued at a premium of Rs. 5 per shares, held

by Anshu on 15th

December 2014, non-Payment of Allotment money of Rs. 8 per shares (including

Security Premium Reserve of Rs. 5 per shares) the first call of Rs. 2 per Shares and the final call of Rs. 3

per shares. Out of these 100 Equity shares were re-issued to Bhavna at Rs. 15 per shares on 24th

December, 2008. Give Journal entries for forfeited and Re-issues of the Shares.


Journal Entry

Date Particulars L.F Dr.(Rs.) Dr.(Rs.)

2014

15th

Dec.




To Calls in Arrear A/c (Bing 150 Shares forfeited for non-payment of allotment and calls

money)

1,500

750

300

1,950

24th

Dec. Bank A/c Dr.


To Security Premium A/c (Being 100 forfeited shares re-issued at Rs 15 fully paid up)

1,500

1,000

500

24th

Dec. Share Forfeited A/c Dr.


200

200

(iii)

Innovative Ltd. forfeited 50 shares of Rs. 10 each issued at a premium of 20% to Ankit, who had

applied for 60 shares for non-payment of allotment money of Rs.6 per shares (including premium) and

the first and final call of Rs.2 per shares. The amount overpaid on application was adjusted towards

allotment. Give Journal Entries regarding forfeiture of Ankit‟s shares.


Journal Entry





To Calls in Arrear A/c (Being 50 shares forfeited for non-payment of allotment and call money)

500

100

240

360

Important Points:

When Shares are issued to promoters for his service the account which will be debited with the

Nominal Value of Shares is “Goodwill Account”.

Dividends are usually paid as a Percentage of Paid up Capital

Paid up Capital is finding out by deducting “Calls in Arrear” from Called up Capital.

A company is not a citizen but it has a legal existence apart from its member forming it. A company

is not enjoy the rights and duties as enjoyed by a natural citizen (Such as right of Voting etc.)

The shares of company are transferable by its members except in case of a private limited company

which may have certain restrictions on such transferability

A company is required by law to keep a prescribed set of account books u\s 129 of the Company‟s Act

- 2016 and any failure in this regard attracts penalties.

Periodic audit is compulsory in case of company and this audit is done by a charted accountant

appointed for this purpose by shareholders on the recommendation of board of directors.

Shareholder has right to inspect of its books of account with the exception of books open for

inspection under the statute.



1. The authorized capital of XX Ltd. is Rs. 1,00,00,000 divided into equity share of Rs. 10 each. The

company invited applications for issuing 80,000 shares. The issue was fully subscribed. All money was

received. Except the final call of Rs. 20,000. For the year ended 31-3-2016 the company declared a

dividend of 10%. The amount of dividend will be:

(a) Rs. 1,00,000 (b) Rs. 8,00,000

(c) Rs. 2,000 (d) Rs. 78,000

P.G.T. N.V. 2016

2. Y Ltd. offered for subscription 4,00,000 equity shares of Rs. 10 each. The company received

applications for 3,00,000 shares. Since the subscription was below minimum subscription, the

company could not allot shares and refunded the application money. What could have been the

minimum subscription in this case?

(a) 3,60,000 (b) 3,20,000

(c) 3,80,000 (d) 3,40,000

P.G.T. N.V. 2016

3. When a company issues shares at a premium, that Security premium can be used full or in part for:

(a) Writing-off Goodwill (b) Writing off the Preliminary expenses

(c) Purchase of fixed assets (d) Writing off advertisement expenses

P.G.T. K.V.S. 2016

4. Preference shareholders are

(A) Creditors of the company (B) Trustee of the company

(C) Employee of the company (D) Owners of the company

DSSB PGT (2015 Tier II) 5. Premium received on the issue of shares is shown in

(A) Debit side of Profit and Loss Account (B) Credit side of Profit and Loss Account

(C) Assets side of the Balance Sheet (D) Liabilities side of the Balance Sheet

DSSB PGT (2015 Tier II)

6. In case the shares are forfeited, the capital account is debited by

(A) Nominal value of shares (B) Paid up amount of shares

(C) Called up amount of shares (D) Uncalled up amount of shares


7. The rate of dividend on equity share is not

(A) Fixed (B) Floating

(C) Equal (D) Suitable


PGT Commerce



1. In case of Companies Accounts, when shares are forfeited, the Share Capital Account is debited by :

M.Com (Entrance 2009)

(a) Paid-up amount

(b) Nominal value of shares

(c) Called up amount

(d) None of these

2. Dividends are usually paid on : M.Com (Entrance 2010)

(a) Authorised capital

(b) Called up capital

(c) Issued capital

(d) Paid up capital

3. Which statement is issued before the issue of shares? M.Com (Entrance 2010)

(a) Memorandum of Association

(b) Prospectus

(c) Articles of Association

(d) Promoters‟ statement

4. 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 : M.Com (Entrance 2010)

(a) Rs.10,000

(b) Rs.2,000

(c) Rs. 8,000

(d) Rs. 18,000

5. Premium on issue of securities can be used for : M.Com (Entrance 2011)

(a) Payment of dividend

(b) Transfer to Capital Redemption Reserve

(c) Payment of interest on debentures

(d) Issue of fully paid bonus shares

6. X Ltd. forfeited 200 shares of Rs. 10 each on which Rs. 6 per share were paid. The company

reissued 150 shares as fully paid up on a payment of Rs. 4 per share. What amount will be

transferred to capital Reserve A/c? M.Com (Entrance 2011)

(a) Rs.1,200

(b) Rs.300

(c) Nil

(d) Rs.900

7. Upon forfeiture of shares, share capital account is debited by : M.Com (Entrance 2012)

(a) Paid-up amount

(b) Nominal value of such shares

(c) Calls-in arrears

(d) Called up amounts

8. X Co. Ltd. forfeited shares of Rs. 10 each on which Rs. 4 per share was paid. The company issued 40

shares @ Rs. 8 per share as fully paid. Amount transferred to capital reserve will be :

M.Com (Entrance 2013)

(a) Rs.400

(b) Rs.240

(c) Rs.160

(d) Rs.80

9. The amount of security premium can be used wholly or in part for: M.Com (Entrance 2013; 2014)

(a) Writing off preliminary expenses

(b) Writing off goodwill

(c) Writing of advertising expenses

(d) Purchasing fixed assets

10. The profit made an reissue of forfeited shares is transferred to : M.Com (Entrance 2014)

(a) Capital Reserve

(b) General Reserve

(c) Capital Redemption Reserve

(d) Profit and loss account

11. How much amount will be credited to Capital Reserve Account if 200 shares of Rs. 10 each are

forfeited on which Rs. 8 per share has been called and only Rs. 2 per share has been paid, reissued

at Rs. 9 per share as fully paid up.: M.Com (Entrance 2017)

(a) Rs.300

(b) Rs.100

(c) Rs.200

(d) Rs.400

M.Com (Entrance) Previous Year Questions



1. The following relate to the shares of a company. What is the correct order?

(a) Issue, Application, Call and forfeiture (b) Application, Call, Forfeiture and Issue

(c) Call, Issue, Application and Forfeiture (d) Forfeiture, Application, Issue and Call

UGC-NET Paper II (June 2011)

2. Gopal was holding 100 shares of Rs. 10 each of a company on which he had paid Rs. 3 an application

and Rs. 2 on allotment but could not pay Rs. 2 on first call. Direction forfeited the above share. Share

capital will be debited by:

(a) Rs. 1,000 (b) Rs. 700

(c) Rs. 500 (d) Rs. 800


3. Assertion (A): Premium received on issue of shares is credited to Security premium account but not to

profit and loss account.

Reasoning (R): Since security premium is not a trading profit, it is not distributed to shareholders.

(a) Both (A) and (R) are true but (R) is not correct explanation to (A)

(b) (A) is false but (R) is correct

(c) Both (A) and (R) are true but (R) is correct explanation of (A)

(d) (A) is correct but (R) is false


4. ABC Ltd was incorporated with an authorised Share Capital Rs. 1,00,000 equity shares of Rs. 10 each.

The board of Director of the company decided to allot 10,000 shares credited as fully paid to the

promoters of the company for their services. Which account should be debited in the books of ABC

Ltd?

(a) Promoter‟s Account (b) Services Account

(c) Goodwill Account (d) Share Capital Account


5. The directors of X Ltd. resolved to forfeit 2000 equity shares of Rs. 10 each. On these shares Rs. 7.50

per share was paid up, but final call of Rs. 2.50 per share was unpaid. 1,000 of the forfeited shares

were reissued at Rs. 7 per share. Capital Reserve Account will be credited by

(1) Rs. 4,500 (2) Rs. 7,500

(3) Rs. 2,500 (4) Rs. 5,000

UGC-NET Paper II (September 2016)

6.Which of the following is not true?

(a) When all forfeited shares are not reissued, the forfeited shares account will also show as

credit balance equal to gain on forfeiture of shares not yet reissued.

(b) Loss on reissue of shares cannot be more than gain on forfeiture of those shares.

(c) At the time of forfeiture of shares, securities premium is debited along with share capital

when premium has not been received

(d) When forfeited share are issued at premium, the premium amount is credited to capital

Reserve Account. UGC-NET Paper III (January 2017)

U.G.C. N.E.T. Previous Year Questions

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