Question 1

A company issues

10,000

equity shares of

$10

each at a premium of

20%

. If the company later forfeits

100

shares on which only the application money of

$3

and allotment money of

$5

(including premium) was paid, what is the maximum discount the company can allow at the time of re-issue of these forfeited shares?

Accepted Answer

$600

Answer

$500

Answer

$300

Answer

$800

Question 2

When a company issues shares to its existing shareholders in proportion to their current holdings at a price lower than the market value, this process is known as a:

Accepted Answer

Rights Issue

Answer

Bonus Issue

Answer

Initial Public Offering

Answer

Private Placement

Question 3

If a company issues 'Bonus Shares' to its shareholders, which of the following statements regarding the company's financial position is correct?

Accepted Answer

The total Share Capital increases while the Reserves and Surplus decrease, but the total Net Worth remains unchanged.

Answer

The total Net Worth of the company increases because new shares are added to the equity.

Answer

The total Cash Balance increases by the nominal value of the shares issued.

Answer

The company is required to pay a mandatory dividend before the capitalization of reserves.

Question 4

If a shareholder fails to pay the first call of

10,000

per share on

$10

shares of

20%

each, and the company subsequently forfeits these shares after the final call of

100

has been made but not paid, what amount will be credited to the 'Forfeited Shares Account' assuming the application and allotment money of

$3

was fully paid?

Accepted Answer

$2,500

Answer

$3,500

Answer

$5,000

Answer

$1,500

Question 5

According to the Companies Act, if a company decides to issue shares at a 'Discount' (below the nominal value), except in the specific case of sweat equity shares, what is the legal status of such an issue?

Accepted Answer

The issue is void and strictly prohibited.

Answer

The issue is valid only if the company has been in business for at least five years.

Answer

The issue is valid if approved by the Central Government.

Answer

The issue is valid if the discount does not exceed

10,000

.

Question 6

If

10,000

shares of

$10

each, on which

20%

(including

100

premium) has been paid, are forfeited, what is the amount to be debited to the 'Share Capital Account' at the time of forfeiture assuming the shares are fully called up?

Accepted Answer

$2,000

Answer

$1,200

Answer

$1,000

Answer

$1,800

Question 7

A company issued

10,000

shares of

$10

each at a premium of

20%

. The full amount was payable on application. Applications were received for

100

shares and the company made a pro-rata allotment. What is the amount of 'Securities Premium' that will be reflected in the Balance Sheet?

Accepted Answer

$50,000

Answer

$60,000

Answer

$110,000

Answer

$10,000

Question 8

When a company decides to forfeit shares for non-payment of call money, and those shares were originally issued at a premium which was already fully collected, how should the 'Securities Premium Account' be treated in the forfeiture entry?

Accepted Answer

The Securities Premium Account is not debited or adjusted at all.

Answer

The Securities Premium Account is credited to the Forfeited Shares Account.

Answer

The Securities Premium Account must be debited to cancel the premium.

Answer

The Securities Premium Account is debited and then credited to the Capital Reserve.

Question 9

If

10,000

shares of

$10

each were forfeited for non-payment of the final call of

20%

per share and were subsequently re-issued at

100

per share as fully paid-up, what is the net amount that should be transferred to the Capital Reserve?

Accepted Answer

$2,500

Answer

$1,000

Answer

$1,500

Answer

$3,500

Question 10

A company decides to issue 'Right Shares' to its existing shareholders. If the market value of a share is

10,000

, and the company offers 1 new share for every 4 shares held at an exercise price of

$10

, what is the theoretical 'Value of a Right'?

Accepted Answer

$10

Answer

$12.50

Answer

$40

Answer

$50