Q-5.11 1 Share Capital This Chapter Includes : Meaning of Shares and Share Capital; Issue of Shares for Cash — At Par, At Premium, At Discount; Application supported by blocked amount (ASBA); Issue of Share on conversion and for consideration other than Cash; Accounting for Forfeiture and Re-issue of Shares; Accounting for Buyback of Shares; Redemption and Conversion of Preference Shares; Rights Issue; Bonus Shares; ESOPs, ESPS, Sweat Equity Shares; Alteration of Share Capital; Underwriting of Shares. Marks of Short Notes, Distinguish Between, Descriptive & Practical Questions CS Executive Programme (Module I) OBJECTIVE QUESTIONS 2008 - Dec [1] {C} (a) State, with reasons in brief, whether the following statements are correct or incorrect : (i) The bonus share issue cannot be made unless the existing partly ! paid shares are fully paid !up. (2 marks)
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Q-5.11
1 Share Capital
This Chapter Includes : Meaning of Shares and Share Capital; Issue of Shares for
Cash — At Par, At Premium, At Discount; Application supported by blocked amount
(ASBA); Issue of Share on conversion and for consideration other than Cash;
Accounting for Forfeiture and Re-issue of Shares; Accounting for Buyback of
Shares; Redemption and Conversion of Preference Shares; Rights Issue; Bonus
Shares; ESOPs, ESPS, Sweat Equity Shares; Alteration of Share Capital;
Underwriting of Shares.
Marks of Short Notes, Distinguish Between, Descriptive & Practical Questions
CS Executive Programme (Module I)
OBJECTIVE QUESTIONS
2008 - Dec [1] {C} (a) State, with reasons in brief, whether the following statements are
correct or incorrect :
(i) The bonus share issue cannot be made unless the existing partly ! paid shares
are fully paid !up. (2 marks)
Q-5.12 SCANNER CS Executive Programme (Module II) Paper 5
(b) Choose the most appropriate answer from the given options in respect of the
following :
(i) Securities premium money can be used for —
(a) Payment of dividend
(b) Writing off goodwill
(c) Issuance of fully paid bonus shares
(d) None of the above.
(iv) The balance of forfeited shares after reissue of the same is transferred to —
(a) Capital reserve account
(b) Share capital account
(c) Profit and loss account
(d) Debenture redemption fund account.
(v) Divisible profits include —
(a) General reserves
(b) Profit on revaluation of assets
(c) Profit prior to incorporation period
(d) Capital reserve. (1 mark each)
(c) Re !write the following sentences after filling !up the blank spaces with appropriate
word (s)/ figure (s) :
(ii) If a company offers to its equity shareholders the right to buy one equity share
of ` 100 each at ` 120 for every 4 equity share of ` 100 each and the market
value of a share is ` 180, then the value of the right is ` _________ .
(iii) The bonus share can be issued only if _______ of the company permits such
an issue . (1 mark each)
Ans:- (a) (i) Correct. (b) (i) (c); (iv) (a); (v) (a). (c) (ii) ` 12; (iii) Articles of
Association.
2009 - June [1] {C} (a) State, with reasons in brief, whether the following statements
are correct or incorrect :
(ii) A joint stock company cannot purchase its own shares.
(iii) If the rate of dividend declared by a company is 22%, then under the Companies
(Transfer of Profits to Reserves) Rules, 1975 the percentage of profits to be
transferred to reserves should be 10%. (2 marks each)
Ans:- (ii) Incorrect; (iii) Correct.
2009 - Dec [1] {C} (a) State, with reasons in brief, whether the following statements are
correct or incorrect :
(iii) Partly paid-up preference shares can be redeemed.
(iv) Dividend can be paid on calls-in advance. (2 marks each)
[Chapter # 1] Share Capital Q-5.13
(b) Choose the most appropriate answer from the given options in respect of the
following :
(i) As per the provisions laid down in Table-A of Schedule-I of the Companies
Act, 1956, the amount of call as the percentage of the face value of shares
should not exceed —
(a) 10%
(b) 25%
(c) 20%
(d) None of the above.
(ii) The minimum percentage of the face value of shares that should be called for
as application money is —
(a) 5
(b) 10
(c) 15
(d) 20.
(v) As per section 77A of the Companies Act, 1956 every buy-back should be
completed within a period of —
(a) 3 months from the date of passing special resolution
(b) 12 months from the date of passing special resolution
(c) 6 months from the date of passing special resolution
(d) 1 month from the date of passing special resolution. (1 mark each)
(c) Re-write the following sentences after filling-in the blank spaces with appropriate
word (s)/figure(s) :
(iii) If forfeited shares are re-issued at a discount, the amount of discount should
in no case exceed the amount credited to______. (1 mark)
2010 - June [1] {C} (a) State, with reasons in brief, whether the following statements
are correct or incorrect:
(iii) Securities premium money can be distributed as dividend. (2 marks)
(b) Choose the most appropriate answer from the given options in respect of the
following:
(ii) As per section 79 of the Companies Act, 1956 from the date of receiving the
sanction of the Central Government, a company must issue shares at
discount within a period of —
(a) One month
(b) Two months
(c) Three months
(d) Six months. (1 mark)
Ans:- (a) (iii) Incorrect. (b) (ii) (b).
Q-5.14 SCANNER CS Executive Programme (Module II) Paper 5
2010 - Dec [1] {C} (a) State, with reasons in brief, whether the following statements aretrue or false :
(iv) No buy-back of partly-paid shares is allowed. (2 marks)
(b) Choose the most appropriate answer from the given options in respect of thefollowing :(iii) Which one is not a statistical book -
(a) Shares calls book(b) Register of share warrants(c) Register of power of attorneys(d) Register of directors’ shareholdings.
(iv) Securities premium account is shown on the liability side under the heading !(a) Share capital (b) Reserves and surplus (c) Current liabilities and provisions(d) None of the above. (1 mark each)
(c) Re-write the following sentences after filling-in the blank spaces with appropriateword (s)/figure(s) :(v) The voluntary return of shares by a shareholder to the company for
cancellation is called . (1 mark)Ans:- (a) (iv)True (b) (iii)(d); (iv)(b) (c) (v) Surrender of Shares
2011 - June [1] {C} (a) Write the most appropriate answer from the given options inrespect of the following :
(i) As per section 77A(4) of the Companies Act, 1956 from the date of passing thespecial resolution, every buy-back should be completed within—(a) 12 Months (b) 3 Months(c) 6 Months (d) 9 Months. (1 mark)
(b) Re-write the following sentences after filling-in the blank spaces with appropriateword figure(s) :(iv) The value of the right is the difference between ________and the
_________of the share. (1 mark)
(c) State, with reasons in brief, whether the following statements are true or false :(i) According to section 80 of the Companies Act, 1956, the redemption of
preference shares by a company shall be taken as reducing the amount of itsauthorised share capital.
(iv) A company can enforce its lien by forfeiting the shares.(v) A limited company can retain excess application money as calls-in-advance
even if there is no provision in the articles of association. (2 marks each)Ans : (a) (i) (a); (b) (iv) Market value and average price; (c) (i) F; (iv) F; (v) F.
[Chapter # 1] Share Capital Q-5.15
2011 - Dec [1] {C} (a) State, with reasons in brief, whether the following statements aretrue or false:
(ii) The logic behind the creation of the capital redemption reserve is to maintain thecapital structure of the company intact after redemption. (2 marks)
(b) Write the most appropriate answer from the given options in respect of thefollowing:(v) Premium on issue of shares can be used for —
(a) Issue of bonus shares(b) Distribution of profit(c) Meeting loss on sale of a fixed asset(d) None of the above. (1 mark)
(c) Re-write the following sentences after filling-in the blank spaces with appropriateword(s)/figure(s):(i) Shares forfeited account is to be shown in the balance sheet by way of
_______ to the paid-up share capital on the liabilities side until the concernedshares are re-issued.
(iv) According to section 209(4A) of the Companies Act, 1956, a company mustpreserve its books of account and its relevant vouchers for a minimum periodof ___________.
(v) A company cannot issue redeemable preference shares for a periodexceeding ___________. (1 mark each)
Ans : (a) (ii) True; (b) (v) (a) Issue of bonus shares (c) (i) addition (iv) eight years(v) twenty years
Space to write important points for revision
2012 - June [1] {C} (a) State, with reasons in brief, whether the following statements
are true or false:
(i) A company can issue debentures with voting rights.
(v) No dividend is paid on calls-in-advance. (2 marks each)
(b) Re-write the following sentences after filling-in the blank spaces with appropriate
word(s)/figure(s):
(iii) Partly paid-up preference shares cannot be __________.
(v) Bonus shares are issued by a company free of charge to its existing
shareholders on __________ basis. (1 mark each)
(c) Write the most appropriate answer from the given options in respect of the
following:
(i) A company cannot issue redeemable preference shares for a period
exceeding—
(a) 5 Years
(b) 10 Years
Q-5.16 SCANNER CS Executive Programme (Module II) Paper 5
(c) 15 Years
(d) 20 Years.
(ii) Which one of the following should be deducted from the share capital to find
30,00,000The preference shares are to be redeemed at 10% premium. Fresh issue of equity
shares is to be made to the extent it is required under the Companies Act, 1956 for thepurpose of this redemption. The shortfall in funds for the purpose of the redemptionafter utilising the proceeds of the fresh issue are to be met by taking a bank loan. Showjournal entries. (6 marks)
(b) Silver Ore Co. Ltd. was formed on 1st April, 2007 with an authorised capital of`6,00,000 in shares of `10 each. Of these, 52,000 shares had been issued and
subscribed but there were calls-in-arrears on 100 shares. From the following trialbalance as on 31st March,2008, prepare the trading and profit and loss account andthe balance sheet :
` `
Cash at bank 1,05,500 —Share capital — 5,19,750Plant 40,000 —Sale of silver — 1,79,500Mines 2,20,000 —Promotional expenses 6,000 —Interest on fixed deposit upto 31st December — 3,900Dividend on investment less 22% tax — 3,200Royalties paid 10,000 —Railway track and wagons 17,000 —Wages of miners 74,220 —Advertising 5,000 —Carriage on plant 1,800 —Furniture and buildings 20,900 —
Q-5.20 SCANNER CS Executive Programme (Module II) Paper 5
Administrative expenses 28,000 —Repairs 900 —Coal and oil 6,500 —Cash 530 —Investments in shares of Tin Mines 80,000 —Brokerage on Tin Mines 1,000 —6% Fixed deposit in Syndicate Bank 89,000 —
7,06,350 7,06,350
Depreciate plant and railway track and wagons by 10%, furniture and building by 5%.
Write off one-third of the promotional expenses. Value of silver on 31st March, 2008
was ̀ 15,000. On 10th December, 2007, the directors forfeited 100 shares of which only
` 7.50 per share had been paid. Ignore corporate dividend tax. (9 marks)
Ans: (b) Net Profit = ` 70,398; Balance Sheet Total = ` 5,90,148.
Space to write important points for revision
2009 - Dec [3] (c) Ronny Ltd. forfeited 200 shares of ` 10 each, ` 8 per share being
called-up on which a shareholder paid application and allotment money of ̀ 5 per share
but did not pay the first call money of ` 3 per share. Of these forfeited shares, 150
shares were subsequently re-issued by the company as fully paid-up for `8 per share.
Give journal entries for the forfeiture and re-issue of shares. (3 marks)
2011 - June [4] (a) Alex Ltd. forfeited 100 shares of ` 10 each issued at a premium of
20% (to be paid at the time of application money) on which allotment money of ` 4 and
first call money of ` 3 were not received; the final call money of ` 2 is not yet called.
These shares were originally allotted in the ratio of 4:5. These shares were
subsequently re-issued at a discount of ` 1 per share, credited as ` 8 paid-up.
Pass journal entries in the books of Alex Ltd. (3 marks)
Ans:- (a) Transfer to share forfeited A/c ` 175.
Space to write important points for revision
2011 - Dec [3] (b) Reliable Ltd. furnishes you with following balance sheet as on 31st
1,00,000 Equity shares of ` 10 each fully paid-up 10,00,000
Securities premium 50,000
Capital redemption reserve 2,00,000
General reserve 3,00,000
Investments in government securities
(market value ` 2,25,000) 2,50,000
Under the terms of the issue, the preference shares are redeemable on 30th
September, 2002 on the following conditions:
— To sell the investments @ 90% of their market value.
— To create a statutory reserve by way of capitalisation as per the provisions of the
Companies Act, 1956 leaving a balance of ̀ 25,000 in general reserve and ̀ 25,000
in securities premium.
— To issue further equity shares, to back up the redemption at ̀ 11 per share payable
as follows:
(i) ` 2 on application;
(ii) ` 3.50 (including premium) on allotment and the balance as call money on 1st
January, 2003.
— The issue was fully subscribed and allotment was made on 1st September, 2002.
The monies due on allotment were received by 25th September, 2002.
Q-5.26 SCANNER CS Executive Programme (Module II) Paper 5
— The preference shares were redeemed after fulfilling the necessary conditions of
section 80 of the Companies Act, 1956.
You are required to calculate — (i) the amount to be capitalised; and (ii) the number
of equity shares to be issued. (4 marks)
Ans:-(i) ` 2,75,000; (ii) 50,000 shares.
Space to write important points for revision
2003 - June [1] {C} (d) Due to non-payment of first call of ` 3 per share, Mona Ltd.
forfeited 100 shares of ` 10 each, which were issued at a discount of Re. 1 per share,
` 8 per share were called-up till date. Of these forfeited shares, 80 shares were issued
subsequently by Mona Ltd. at ` 5 as ` 8 paid-up per share. Give journal entries for the
forfeiture and re-issue of shares in the books of Mona Ltd. (4 marks)
Ans:-Profit on re-issue of share ` 160.
Space to write important points for revision
2003 - Dec [1] {C} (a) 15,000, 9% Redeemable preference shares of ` 100 each of
Global Customer Care Ltd., repayable at a premium of 12% are now due for
redemption. The company has accumulated reserves, the amount of which is much in
excess of the sum required for redemption. In addition, there is a large balance lying in
securities premium account which is available for payment of premium on redemption.
Show the journal entries in the books of the company to give effect to the above.
(4 marks)
2003 - Dec [2] (c) The balance sheet of Modern Marbles Ltd. as at 31st March, 2003
is as follows:
Liabilities ` Assets `
Share capital of ` 10 each 50,00,000 Fixed assets 66,00,000
General reserve 6,50,000 Investments 18,00,000
Securities premium 5,40,000 Stock 11,87,000
Profit and loss account 3,75,000 Sundry debtors 9,60,000
12% Debentures 25,00,000 Cash and bank balance 7,10,000
Term loan 13,25,000
Current liabilities and
provisions 8,67,000
1,12,57,000 1,12,57,000
[Chapter # 1] Share Capital Q-5.27
The shareholders adopted the resolution on the date of the above mentioned balance
sheet to:
(i) Buy-back 20% of the paid-up share capital @ ` 15 each;
(ii) Issue 13% debentures of ` 5,00,000 at a premium of 10% to finance the buy-
back of shares;
(iii) Maintain a balance of ` 3,00,000 in general reserve account; and
(iv) Sell investments worth ` 8,00,000 for ` 6,50,000.
You are required to pass the necessary journal entries to record the above
transactions and prepare the balance sheet immediately after the buy-back.(9 marks)
Hint:- It is to be assumed that the securities premium has been utilised exclusively
for the payment of premium on buy-back.
Ans:-Total of Balance Sheet ` 1,01,57,000.
Space to write important points for revision
2004 - June [3] (b) Sukriti Ltd. forfeited 100 shares of ` l0 each for non-payment of final
call of ̀ 2. Of these, 60 shares were re-issued @ ̀ 9 per share as fully paid. Pass journal
entries in the books of Sukriti Ltd. clearly showing how much amount was credited to
shares forfeited account and what amount was transferred to capital reserve account.
(3 marks)
2004 - Dec [2] (a) The balance sheet of Sunny Electrical Ltd. as on 31st March, 2004
stood as under :
Liabilities ` Assets `
Share Capital: Fixed assets 2,73,60,000
20,00,000 Equity shares Investments 75,00,000
of `10 each, fully paid 2,00,00,000 Stock 47,80,000
General reserve 25,00,000 Debtors 40,20,000
Premium on securities 22,00,000 Cash & bank balances 15,40,000
Profit and loss account 15,00,000
9% Debentures 75,00,000
Term loans 80,00,000
Creditors 29,00,000
Provisions for tax 6,00,000
4,52,00,000 4,52,00,000
At a meeting of the shareholders held on the date of the above stated balance
sheet, the following decisions were taken :
(i) 15% of the paid-up shares would be bought back @ ` 16 each.
(ii) 10% Debentures of ̀ 20,00,000 at a premium of 15% would be issued to finance
the buy-back.
Q-5.28 SCANNER CS Executive Programme (Module II) Paper 5
(iii) General reserve would be used leaving a balance of ` 10,00,000.
(iv) Investments worth ` 20,00,000 would be sold out for ` 28,00,000.
You are required to pass the necessary journal entries to give effect to the abovetransactions and also to prepare the balance sheet after the buy-back. (10 marks)
Ans:-B/s Total = 435 (` in lakhs).
Space to write important points for revision
2004 - Dec [3] (b) Futuristic India Ltd. has a part of its share capital in the form of10,000, 9% redeemable preference shares of ` 100 each repayable at premium of 10%.
Now the shares are fully ready for redemption, it has been decided that the wholeamount would be redeemed by way of a fresh issue of 1,00,000 equity shares of ` 10
each at a premium of ` 15 each.
Show necessary journal entries assuming that the whole amount is received incash and 9% preference shares are redeemed. (4 marks)
2005 - Dec [1] {C} Attempt the following:(iii) The paid-up share capital of Foresight Ltd. includes 5,000, 9% redeemable
preference shares of `100 each, repayable at a premium of 6%. As the shares
have become ready for redemption, the company has decided to redeem theentire amount out of the proceeds of a fresh issue of 50,000 equity shares of `10
each at `10.60 per share. The company realised the entire amount of equity
issue in cash and redeemed the preference shares on date. You are required toshow the journal entries in the books of the company. (4 marks)
2006 - June [2] (b) Following is the balance sheet of Danny Ltd. as on 31st March,2005 :
Liabilities (`’000)
Issued and paid-up capital :3,00,000 Equity shares of ` 10 each 3,000
General reserve 100Securities premium 510% Debentures 1,400Sundry creditors 1,560
6,065AssetsLand and building 630Plant and machinery 2,350Furniture and fittings 350Investments 370Stock 1,200Sundry debtors 590Cash and bank balance 575
[Chapter # 1] Share Capital Q-5.29
6,065On 1st April, 2005, the shareholders of the company have approved the scheme of
buy-back of equity shares as under :(i) 15% of the equity shares would be bought-back at ` 11 per share.
(ii) Balance in the general reserve and securities premium account may be utilisedto the fullest extent for this purpose.
(iii) Issue 12% redeemable preference shares of ` 10 each as per the requirements.
Pass the journal entries to record the above transactions and prepare the balancesheet of the company immediately after the buy-back of shares. (10 marks)
Hint:- 39,000 12% redeemable preference shares of ` 10 each to be issued in
order to comply with the provision of Sec. 77AA of the Companies Act, 1956.Ans:- Balance Sheet Total = ` 59,60,000.
Space to write important points for revision
2006 - Dec [2] (a) The following particulars are given from the records of Maxel Ltd.
relating to issue and forfeiture of equity shares. The amount per share was payable as
` 3 on application; ` 5 on allotment (including ̀ 2 as premium); and ` 4 on first and final
call :
Category No. of No. of
Shares Shares
Allotted Applied
I 20,000 30,000
II 10,000 10,000
III — 5,000 (Application money refunded)
Allotments were made pro rata in Category-I. Raj, who applied for 450 shares in
Category-I, failed to pay the allotment money and call money and his shares were
forfeited by the company. Subsequently, 200 forfeited shares were issued to Hari as
fully paid for ` 9 per share
Show the journal and cash book entries to record the above transactions.
(5 marks)
2007 - June [2] (a) Zutshi Ltd. has 12% redeemable preference share capital of `
2,00,000 consisting shares of ` 100 each fully called and paid-up. The company wants
to redeem them at 10% premium. The ledger accounts show the following balances :
Profit and loss account ` 40,000 and securities premium account ` 8,000. The
company desires to make a minimum fresh issue of equity shares of ` 10 each at 5%
premium for redemption of the preference shares. You are required to ascertain the
amount of such fresh issue to be made by the company and pass necessary journal
entries regarding fresh issue and redemption of preference shares. (9 marks)
Q-5.30 SCANNER CS Executive Programme (Module II) Paper 5
Hint:- No. of share ! 16,381 : Equity share capital ` 163,810; Securities Premium
= ` 8,190.
Ans:- Total Amount of fresh issue = ` 1,72,000; payment to Preference
Shareholder’s = ` 2,20,000
Space to write important points for revision
2007 - Dec [3] (b) Following is the balance sheet of Navyug Construction Ltd. as on 31st
March, 2007:Liabilities: Authorised capital :20,000 Equity shares of ` 10 each
Issued, subscribed and paid-up capital:12,000 Equity shares of ` 10 each
Less: Calls in arrear (` 3 per share on 3,000 shares)
Sundry creditorsProvision for taxes
` 1,20,000
` 9,000
`
2,00,000
1,11,00015,425
4,000 1,30,425
AssetsGoodwill Land and buildings Machinery Stock Book debts
Cash at bank Preliminary expenses Profit and loss account:Balance as per last balance sheet Less: Profit for the year
` 22,000
` 1,200
10,00020,50050,85010,27515,000
1,5001,500
20,8001,30,425
The directors have had a valuation made of the machinery and found it overvaluedby ̀ 10,000. It is proposed to write down this asset to its true value and to extinguish the
deficiency in the profit and loss account and to write off goodwill and preliminaryexpenses by adoption of the following scheme:
(i) Forfeit the shares on which the calls are outstanding.(ii) Reduce the paid-up capital by ` 3 per share.
(iii) Re-issue the forfeited shares at ` 5 per share.
(iv) Utilise the provision for taxes, if necessary.
[Chapter # 1] Share Capital Q-5.31
The shares on which the calls were in arrear were duly forfeited and re-issued as fullypaid shares of ` 7 each on payment of ` 5 per share.
You are required to pass necessary journal entries and prepare the balance sheet of thecompany after carrying out the terms of the scheme as set-out above. (9 marks)
Ans:- Balance Sheet Total ) 1,03,125 Space to write important points for revision
Repeatedly Asked Questions
No. Question Frequency
1 Write short notes on Lien on shares.00 - June [1] {C} (i), 11 - June [3] (iii) 2 Times