Question 1

A company issues 50,000 shares of $Rs. 10$ each at a premium of $Rs. 2$ per share. The premium is received with the application money. What is the correct journal entry for the receipt of application money?

Accepted Answer

Correct Option: A. Solution: The correct entry is to debit Bank A/c and credit Share Application A/c with the total amount received, which includes both the face value and the premium. Thus, Bank A/c Dr. $6,00,000$ To Share Application A/c $6,00,000$ is the correct entry.

Question 2

Which of the following is a feature of a company that distinguishes it from other forms of business organization?

Accepted Answer

Correct Option: B. Solution: A company has perpetual succession, meaning it continues to exist regardless of changes in membership.

Question 3

A company issued 10,000 shares of $10$ each at a premium of $2$ per share. If the premium is collected at the time of allotment, what will be the total amount credited to the Securities Premium Account?

Accepted Answer

Correct Option: B. Solution: The premium amount is $2$ per share. For 10,000 shares, the total premium is $10,000 	imes 2 = 20,000$, which is credited to the Securities Premium Account.

Question 4

Which type of company has its members' liability limited to the nominal value of shares held by them?

Accepted Answer

Correct Option: A. Solution: In companies limited by shares, the liability of its members is limited to the nominal value of shares held by them.

Question 5

What is the liability of members in a company limited by shares?

Accepted Answer

Correct Option: B. Solution: In a company limited by shares, the liability of its members is limited to the unpaid amount on the shares held by them.

Question 6

If a company decides to make a pro-rata allotment to all applicants in an oversubscription scenario, how is the excess application money typically handled?

Accepted Answer

Correct Option: B. Solution: In a pro-rata allotment, the excess application money is usually adjusted towards the allotment money due.

Question 7

What is the term used for the portion of share capital that is called up only in the event of winding up of the company?

Accepted Answer

Correct Option: B. Solution: Reserve Capital is the portion of the uncalled capital of a company that is called up only in the event of winding up.

Question 8

What is the accounting treatment when shares are issued at a premium and the premium is collected with the allotment money?

Accepted Answer

Correct Option: B. Solution: When shares are issued at a premium, the amount of premium is credited to a separate account called the Securities Premium Account.

Question 9

A company issued 50,000 shares for public subscription, but received applications for 60,000 shares. The directors decided to allot shares on a pro-rata basis. If the application money is $2$ per share and the allotment money is $3$ per share, how should the excess application money be treated?

Accepted Answer

Correct Option: B. Solution: In a pro-rata allotment, the excess application money is typically adjusted towards the allotment money due.

Question 10

A company issues shares at a premium and collects the premium amount along with the allotment money. How should the premium be recorded?

Accepted Answer

Correct Option: A. Solution: The premium amount is credited to Securities Premium A/c as it is not part of the share capital.

Question 11

A company issued shares at a price higher than their nominal value. What is the excess amount called?

Accepted Answer

Correct Option: B. Solution: When shares are issued at a price higher than their nominal value, the excess amount is called a premium.

Question 12

Which category of share capital can be called upon only in the event of winding up of the company?

Accepted Answer

Correct Option: C. Solution: Reserve capital is the portion of the uncalled capital that can be called only in the event of winding up of the company.

Question 13

Which of the following best describes 'Calls in Arrears' in share transactions?

Accepted Answer

Correct Option: C. Solution: 'Calls in Arrears' refers to the amount that is due but not paid by shareholders.

Question 14

What is the journal entry for the transfer of share application money to share capital when shares are allotted?

Accepted Answer

Correct Option: A. Solution: The correct entry for transferring application money to share capital upon allotment is to debit the Share Application Account and credit the Share Capital Account.

Question 15

When shares are issued at a premium, how is the premium amount treated in the company's accounts?

Accepted Answer

Correct Option: B. Solution: When shares are issued at a premium, the premium amount is credited to a separate account called 'Securities Premium Account'.

Question 16

What is the significance of a company's common seal?

Accepted Answer

Correct Option: A. Solution: The common seal acts as the official signature of the company, binding it to documents.

Question 17

What is the accounting treatment for 'Calls in Arrears' in a company's financial records?

Accepted Answer

Correct Option: B. Solution: 'Calls in Arrears' are recorded as a debit in the Calls in Arrears Account to reflect the unpaid amount by shareholders.

Question 18

A company issued shares of Rs. 100 each at a premium of Rs. 20. If the premium is collected with the application money, what is the journal entry for the receipt of application money for 1,000 shares?

Accepted Answer

Correct Option: B. Solution: The premium is collected with the application money, so the entry is Bank A/c Dr. 1,20,000 To Share Application A/c 1,20,000.

Question 19

A company issues shares at a nominal value of Rs. 100 each at a premium of 10%. If the premium is collected at the time of allotment, what is the total amount payable on allotment per share?

Accepted Answer

Correct Option: B. Solution: The total amount payable on allotment per share is Rs. 110, which includes the nominal value of Rs. 100 and a premium of Rs. 10.

Question 20

How is the share capital classified in the balance sheet when shares are subscribed but not fully paid up?

Accepted Answer

Correct Option: B. Solution: Shares that are subscribed but not fully paid up are classified as 'Subscribed but Not Fully Paid Up' in the balance sheet.

Question 21

If a company decides to issue shares at Rs. 10 each, but receives applications for Rs. 15 each, what is this situation called?

Accepted Answer

Correct Option: B. Solution: Over Subscription occurs when the number of applications received exceeds the number of shares offered for subscription.

Question 22

What is the maximum rate of interest a company can charge on calls in arrears if the Articles of Association are silent?

Accepted Answer

Correct Option: B. Solution: If the Articles of Association are silent, the maximum rate of interest on calls in arrears is 10% per annum as per Table F.

Question 23

A company issued shares at a premium. If the nominal value of a share is Rs. 100 and it is issued at Rs. 110, where is the premium amount recorded?

Accepted Answer

Correct Option: B. Solution: The premium amount is credited to the Securities Premium Account, which is a separate account used to record the amount received over the nominal value of shares.

Question 24

A company issues 10,000 shares of $	ext{Rs.}$ 10 each at a premium of $	ext{Rs.}$ 2 per share. If the premium is collected at the time of allotment, what is the total amount credited to the Securities Premium Account?

Accepted Answer

Correct Option: A. Solution: The premium per share is $	ext{Rs.}$ 2, and there are 10,000 shares. Therefore, the total premium is $10,000 	imes 2 = 20,000$. This amount is credited to the Securities Premium Account.

Question 25

How is the interest on 'Calls in Advance' treated in the accounting records of a company?

Accepted Answer

Correct Option: B. Solution: Interest on 'Calls in Advance' is debited to the Interest on Calls in Advance Account when paid to shareholders.

Question 26

If a company receives $	ext{Rs.}$ 5,000 as calls in advance from a shareholder, which of the following is the correct journal entry?

Accepted Answer

Correct Option: A. Solution: The correct entry is to debit Bank A/c and credit Calls in Advance A/c as it represents a liability.

Question 27

Which feature of a company allows it to own property and enter into contracts in its own name?

Accepted Answer

Correct Option: B. Solution: A Separate Legal Entity allows a company to own property and enter into contracts independently of its members.

Question 28

Which of the following is a characteristic of a public company?

Accepted Answer

Correct Option: C. Solution: A public company is defined as a company that is not a private company and does not have the restrictions that apply to private companies.

Question 29

In a scenario where a company receives applications for 1,50,000 shares against an offer of 1,00,000 shares, and decides to reject applications for 50,000 shares outright, what accounting entry should be made for the rejected applications?

Accepted Answer

Correct Option: B. Solution: The entry for rejected applications involves debiting the Share Application Account and crediting the Bank Account to refund the application money.

Question 30

In the context of share capital, what does 'calls in arrears' refer to?

Accepted Answer

Correct Option: B. Solution: 'Calls in arrears' refers to the portion of the called-up capital that has not been paid by the shareholders by the due date.

Question 31

If a company issues shares at a premium, which of the following is true about the treatment of the premium amount?

Accepted Answer

Correct Option: B. Solution: When shares are issued at a premium, the premium amount is credited to the Securities Premium Account.

Question 32

How is the excess application money treated in a pro-rata allotment scenario?

Accepted Answer

Correct Option: B. Solution: In a pro-rata allotment, the excess application money is adjusted towards the amount due on allotment.

Question 33

A company is considered a separate legal entity. What does this imply?

Accepted Answer

Correct Option: B. Solution: Being a separate legal entity, a company can enter into contracts and can sue or be sued in its own name.

Question 34

If a company issues shares at a premium, at which stage is the premium typically collected?

Accepted Answer

Correct Option: B. Solution: The premium is generally called with the amount due on allotment.

Question 35

What is the primary difference between authorized capital and issued capital in a company?

Accepted Answer

Correct Option: A. Solution: Authorized capital is the maximum amount of share capital that a company is allowed to issue as per its Memorandum of Association, whereas issued capital is the portion of this authorized capital that is actually offered to the public for subscription.

Question 36

What is the term used for the portion of share capital that a company is authorized to issue as per its Memorandum of Association?

Accepted Answer

Correct Option: B. Solution: Authorized capital is the amount of share capital which a company is authorized to issue by its Memorandum of Association.

Question 37

In a situation of under subscription, what must a company ensure before proceeding with the allotment of shares?

Accepted Answer

Correct Option: A. Solution: In under subscription, it must be ensured that the company has received the minimum subscription before proceeding with the allotment.

Question 38

In the context of share capital, what does 'over subscription' mean?

Accepted Answer

Correct Option: B. Solution: Over subscription occurs when applications for more shares are received than the number offered to the public for subscription.

Question 39

A company offered 1,00,000 shares to the public but received applications for only 80,000 shares. What is this situation called, and what should the company ensure before proceeding with the allotment?

Accepted Answer

Correct Option: B. Solution: This is a case of under subscription. The company must ensure that the minimum subscription is met before proceeding with the allotment.

Question 40

A company received applications for 25,000 shares but only 20,000 shares were offered. What is the accounting treatment for the excess application money if the directors decide to refund it?

Accepted Answer

Correct Option: C. Solution: When the directors decide to refund the excess application money, the correct treatment is to refund it back to the applicants.

Question 41

When shares are issued at a premium, where is the premium amount recorded?

Accepted Answer

Correct Option: B. Solution: The premium amount received on the issue of shares is credited to the 'Securities Premium Account'.

Question 42

A company that cannot carry out non-banking financial investment activities and has a paid-up share capital not exceeding Rs. 50 Lakhs is known as:

Accepted Answer

Correct Option: C. Solution: A One Person Company (OPC) cannot carry out non-banking financial investment activities and its paid-up share capital should not exceed Rs. 50 Lakhs.

Question 43

A company issues shares with a nominal value of Rs. 100 at Rs. 120. What is the percentage premium on these shares?

Accepted Answer

Correct Option: C. Solution: The premium is Rs. 20 on a nominal value of Rs. 100, which is a 20% premium.

Question 44

What is the primary characteristic that allows a company to continue its existence despite changes in membership?

Accepted Answer

Correct Option: B. Solution: Perpetual Succession ensures that a company continues to exist irrespective of changes in membership, such as death or insolvency of its members.

Question 45

If a company has issued shares but not all of them have been subscribed by the public, what is this situation called?

Accepted Answer

Correct Option: B. Solution: Under subscription occurs when the number of shares applied for is less than the number offered for subscription.

Question 46

Which of the following is a characteristic of a company limited by shares?

Accepted Answer

Correct Option: B. Solution: In a company limited by shares, the liability of its members is limited to the extent of the nominal value of shares held by them.

Question 47

How is 'calls in advance' treated in the financial statements of a company?

Accepted Answer

Correct Option: B. Solution: 'Calls in advance' is treated as a liability and shown under the head 'current liabilities' in the company's balance sheet.

Question 48

A company receives applications for 15,000 shares but only issues 10,000 shares. The excess application money is adjusted towards allotment. If the application money is $	ext{Rs.}$ 5 per share and the allotment money is $	ext{Rs.}$ 10 per share, how much additional money needs to be collected at the time of allotment?

Accepted Answer

Correct Option: C. Solution: The company receives application money for 15,000 shares, which is $15,000 	imes 5 = 75,000$. For 10,000 shares, the application money is $10,000 	imes 5 = 50,000$. The excess application money is $75,000 - 50,000 = 25,000$. The allotment money required for 10,000 shares is $10,000 	imes 10 = 100,000$. Therefore, the additional money needed is $100,000 - 25,000 = 75,000$.

Question 49

What is the effect on the company's balance sheet when shares are issued at a premium?

Accepted Answer

Correct Option: B. Solution: Issuing shares at a premium increases both the Share Capital and the Securities Premium Account.

Question 50

What is the accounting treatment for 'Calls in Advance' received from shareholders?

Accepted Answer

Correct Option: B. Solution: 'Calls in Advance' is credited to Calls in Advance A/c as it is a liability until the call is due.

Question 51

A company issues 10,000 shares of $Rs. 10$ each at a premium of $Rs. 2$ per share. If the premium is received with the allotment money, what is the correct entry for the allotment?

Accepted Answer

Correct Option: C. Solution: The correct entry is to debit Share Allotment A/c and credit both Share Capital A/c and Securities Premium A/c for the premium received.

Question 52

What is the liability of shareholders in a company limited by shares?

Accepted Answer

Correct Option: B. Solution: In a company limited by shares, the liability of shareholders is limited to the extent of the unpaid amount on the shares held by them.

Question 53

Which of the following is NOT a correct treatment of securities premium according to standard accounting practices?

Accepted Answer

Correct Option: B. Solution: Securities premium cannot be distributed as dividends to shareholders; it is used for specific purposes like writing off preliminary expenses or issuing fully paid bonus shares.

Question 54

What is the liability of members in a company limited by guarantee?

Accepted Answer

Correct Option: C. Solution: In a company limited by guarantee, the liability of its members is limited to the amount they undertake to contribute in the event of the company being wound up.

Question 55

If a shareholder pays the call amount in advance, how is this amount recorded in the company's books?

Accepted Answer

Correct Option: B. Solution: The amount received in advance is recorded as a liability under 'Calls in Advance' until the call is due.

Question 56

Which type of share capital is reserved to be called only in the event of winding up of the company?

Accepted Answer

Correct Option: C. Solution: Reserve capital is the portion of uncalled capital that can be called only in the event of winding up of the company.

Question 57

If a company receives applications for 50,000 shares but only issues 40,000 shares, what is the accounting treatment for the excess application money received for 10,000 shares?

Accepted Answer

Correct Option: B. Solution: When applications exceed the shares issued, the excess application money is refunded to the applicants.

Question 58

In case of winding up, which type of company allows creditors to claim dues from the private property of its members?

Accepted Answer

Correct Option: C. Solution: In unlimited companies, if the company's property is insufficient to pay off its debts, creditors can claim their dues from the private property of its members.

Question 59

What is the accounting treatment for over subscription when the directors decide to fully accept some applications and totally reject others?

Accepted Answer

Correct Option: A. Solution: When directors decide to fully accept some applications and reject others, the application money received on rejected applications is fully refunded.

Question 60

A company issued 10,000 shares of $	ext{Rs.}$ 10 each, payable $	ext{Rs.}$ 3 on application, $	ext{Rs.}$ 4 on allotment, and $	ext{Rs.}$ 3 on first and final call. If a shareholder fails to pay the first and final call on 500 shares, how should the company record this in their books?

Accepted Answer

Correct Option: A. Solution: The amount not received on the first and final call should be debited to Calls in Arrears A/c.

Question 61

When a company receives more applications for shares than the number of shares offered, which accounting entry is made for the excess application money if the directors decide to refund it?

Accepted Answer

Correct Option: B. Solution: When excess application money is refunded, the entry is to debit Share Application A/c and credit Bank A/c.

Question 62

Which of the following is NOT a permissible use of the securities premium account as per the Companies Act?

Accepted Answer

Correct Option: C. Solution: The securities premium account cannot be used to pay dividends to shareholders.

Question 63

A company has an authorized capital of $10,00,000$ divided into $1,00,000$ shares of $10$ each. It issues $50,000$ shares at a premium of $20\%$. If the company receives applications for $60,000$ shares, how should the excess application money be treated according to the standard accounting practices?

Accepted Answer

Correct Option: B. Solution: When a company receives applications for more shares than it has issued, the excess application money is typically adjusted against the amount due on allotment. This is a common practice to manage oversubscription efficiently.

Question 64

A company issued 5,000 shares at a premium of $10$ per share, and the premium was collected with the application money. What journal entry records the receipt of the application and premium?

Accepted Answer

Correct Option: B. Solution: The total amount received is the face value plus the premium: $5,000 	imes (10 + 5) = 75,000$. Thus, the entry is Bank A/c Dr. $75,000$ To Share Application A/c $75,000$.

Accounting for Share Capi..

Learning Objectives

Learning Objectives

Revision Notes & Summary

Accounting for Share Capital

1. Introduction

2. Features of a Company

3. Types of Companies

4. Share Capital

5. Key Terms

6. Accounting Treatment

7. Common Mistakes

8. Practice Questions

Exam Tips & Common Mistakes

Common Mistakes and Exam Tips

Common Pitfalls

Exam Tips

AI Learning Assistant

Practice Test – MCQs, True/False

Experience the StudyTunnel Method

Step 1: Chapter Practice

Step 2: Term Boss Exam

Step 3: Redemption Arena

Practice, Analyze & Improve 🚀

Multiple Choice Questions

Q1.A company issues 50,000 shares of Rs.10Rs. 10Rs.10 each at a premium of Rs.2Rs. 2Rs.2 per share. The premium is received with the application money. What is the correct journal entry for the receipt of application money?

Correct Answer: A

Q2.Which of the following is a feature of a company that distinguishes it from other forms of business organization?

Correct Answer: B

Q3.A company issued 10,000 shares of 101010 each at a premium of 222 per share. If the premium is collected at the time of allotment, what will be the total amount credited to the Securities Premium Account?

Correct Answer: B

Q4.Which type of company has its members' liability limited to the nominal value of shares held by them?

Correct Answer: A

Q5.What is the liability of members in a company limited by shares?

Correct Answer: B

Q6.If a company decides to make a pro-rata allotment to all applicants in an oversubscription scenario, how is the excess application money typically handled?

Correct Answer: B

Q7.What is the term used for the portion of share capital that is called up only in the event of winding up of the company?

Correct Answer: B

Q8.What is the accounting treatment when shares are issued at a premium and the premium is collected with the allotment money?

Correct Answer: B

Q9.A company issued 50,000 shares for public subscription, but received applications for 60,000 shares. The directors decided to allot shares on a pro-rata basis. If the application money is 222 per share and the allotment money is 333 per share, how should the excess application money be treated?

Correct Answer: B

Q10.A company issues shares at a premium and collects the premium amount along with the allotment money. How should the premium be recorded?

Correct Answer: A

Q11.A company issued shares at a price higher than their nominal value. What is the excess amount called?

Correct Answer: B

Q12.Which category of share capital can be called upon only in the event of winding up of the company?

Correct Answer: C

Q13.Which of the following best describes 'Calls in Arrears' in share transactions?

Correct Answer: C

Q14.What is the journal entry for the transfer of share application money to share capital when shares are allotted?

Correct Answer: A

Q15.When shares are issued at a premium, how is the premium amount treated in the company's accounts?

Correct Answer: B

Q16.What is the significance of a company's common seal?

Correct Answer: A

Q17.What is the accounting treatment for 'Calls in Arrears' in a company's financial records?

Correct Answer: B

Q18.A company issued shares of Rs. 100 each at a premium of Rs. 20. If the premium is collected with the application money, what is the journal entry for the receipt of application money for 1,000 shares?

Correct Answer: B

Q19.A company issues shares at a nominal value of Rs. 100 each at a premium of 10%. If the premium is collected at the time of allotment, what is the total amount payable on allotment per share?

Correct Answer: B

Q20.How is the share capital classified in the balance sheet when shares are subscribed but not fully paid up?

Correct Answer: B

Q21.If a company decides to issue shares at Rs. 10 each, but receives applications for Rs. 15 each, what is this situation called?

Correct Answer: B

Q22.What is the maximum rate of interest a company can charge on calls in arrears if the Articles of Association are silent?

Correct Answer: B

Q23.A company issued shares at a premium. If the nominal value of a share is Rs. 100 and it is issued at Rs. 110, where is the premium amount recorded?

Correct Answer: B

Q24.A company issues 10,000 shares of Rs.\text{Rs.}Rs. 10 each at a premium of Rs.\text{Rs.}Rs. 2 per share. If the premium is collected at the time of allotment, what is the total amount credited to the Securities Premium Account?

Correct Answer: A

Q25.How is the interest on 'Calls in Advance' treated in the accounting records of a company?

Correct Answer: B

Q26.If a company receives Rs.\text{Rs.}Rs. 5,000 as calls in advance from a shareholder, which of the following is the correct journal entry?

Correct Answer: A

Q27.Which feature of a company allows it to own property and enter into contracts in its own name?

Correct Answer: B

Q28.Which of the following is a characteristic of a public company?