Commerce and Accountancy MCQs - 4

1. A company has ____

(a) Separate Legal Entity
(b) Perpetual Existence
(c) Limited Liability
(d) All of the Above

Ans. (d)
Explanation: A company is a voluntary association of persons recognised by law, having a distinctive name and
common seal, formed to carry on business for profit, with capital divisible into transferable shares, limited liability, a
corporate body and perpetual succession.

2. Nominal share capital is :

(a) that part of the authorised capital which is issued by the company.
(b) the amount of capital which is actually applied for by the prospective shareholders.
(c) the maximum amount of share capital which a company is authorised to issue.
(d) the amount actually paid by the shareholders.

Ans. (c)
Explanation: Nominal share capital is an alternative term for authorized share capital. Nominal capital simply refers to
the amount of capital (in shares) a company is legally authorized to make available to shareholders.

3. Money received in advance from shareholders before it is actually called-up by the directors is :
(a) debited to calls in advance account
(b) credited to calls in advance account
(c) debited to calls account
(d) none of the above

Ans. (b)
Explanation: Sometimes shareholders pay a part or the whole of the amount of the calls not yet made. The amount so
received from the shareholders is known as “Calls in Advance”. The amount received in advance is a liability of the
company and should be credited to ‘Call in Advance Account.”

4. Shares can be forfeited :

(a) for non-payment of call money
(b) for failure to attend meetings
(c) for failure to repay the loan to the bank
(d) for which shares are pledged as a security

Ans. (a)
Explanation: It may happen that some shareholders fail to pay one or more instalments, viz. allotment money and/or
call money. In such circumstances, the company can forfeit their shares, i.e. cancel their allotment and treat the
amount already received thereon as forfeited to the company within the framework of the provisions in its articles.

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 5. The Profit on reissue of forfeited shares is transferred to :
(a) general reserve
(b) capital redemption reserve
(c) capital reserve
(d) revenue reserve

Ans. (c)
Explanation: The directors can either cancel or re-issue the forfeited shares. In most cases, they reissue such shares
which may be at par, at premium or at a discount. Forfeited shares may be reissued as fully paid at a par, premium, or
discount. In this context, it may be noted that the amount of discount allowed cannot exceed the amount that had
been received on forfeited shares at the time of initial issue, and that the discount allowed on reissue of forfeited
shares should be debited to the ‘Forfeited Share Account’. The balance, if any, left in the Share-Forfeited Account
relating to reissued Shares, should be treated as capital profit and transferred to Capital Reserve Account.

6. Balance of share forfeiture account is shown in the balance sheet under the item :
(a) current liabilities and provisions
(b) reserves and surpluses
(c) share capital
(d) unsecured loans

Ans. (c)

7. If vendors are issued fully paid shares of ₹1,25,000 in consideration of net assets of ₹1,50,000, the balance of
₹25,000 will be credited to :
(a) Statement of Profit & Loss
(b) Goodwill Account
(c) Security Premium Reserve Account
(d) Capital Reserve Account.

Ans. (c)
Explanation: When the company decides to issue shares at a price higher than the nominal value or face value we call
it shares issued at a premium. So say the face value of a share is Rs 100/- and the company issues it at Rs 110/-. The
share is said to have been issued at a 10% premium. The premium will not make a part of the Share Capital account
but will be reflected in a special account known as the Securities Premium Account.

8. Securities premium account is shown on the liabilities side of the balance sheet under the head:
(a) Share capital
(b) Reserve and Surplus
(c) Current liabilities
(d) Current assets

Ans. (b)
Explanation: When the company decides to issue shares at a price higher than the nominal value or face value we call
it shares issued at a premium. This amount of premium can be called up by the company at any given time, i.e. with
any call. The general norm is to collect the premium with either allotment or application money, rarely with call

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 money. The premium amount is credited to the Securities Premium Account. This account is found under the heading
of Reserves and Surplus on the liabilities side of the Balance Sheet.

9. The bonus issue is not made unless:

(a) Partly paid shares are made fully paid up
(b) It is provided in its articles of association
(c) Both (a) and (b)
(d) It has defaulted in payment of interest or principle
Ans. (c)
Explanation: According to Section 63(2) of Companies Act, no company shall capitalise its profits or reserves for the
purpose of issuing fully paid-up bonus shares under sub-section (1), unless—
(a) it is authorised by its articles;
(b) it has, on the recommendation of the Board, been authorised in the general meeting of the company;
(c) it has not defaulted in payment of interest or principal in respect of fixed deposits or debt securities issued by
it;
(d) it has not defaulted in respect of the payment of statutory dues of the employees, such as, contribution to
provident fund, gratuity and bonus;
(e) the partly paid-up shares, if any outstanding on the date of allotment, are made fully paid-up;

10. Bonus shares can be issued from following except:

(a) Free reserves
(b) Securities Premium
(c) Capital Redemption Reserve
(d) Capital Reserve arising due to revaluation

Ans. (d)
Explanation: A company may issue fully paid-up bonus shares to its members, in any manner whatsoever, out of— (i)
its free reserves; (ii) the securities premium account; or (iii) the capital redemption reserve account: Provided that no
issue of bonus shares shall be made by capitalising reserves created by the revaluation of assets.

11. Which of the following statements is false?

(a) Bonus issue is made in lieu of dividend
(b) Bonus issue is not made unless the partly paid shares are made fully paid up
(c) Bonus issue must be implemented within six months from the date of approval
(d) Bonus is simply capitalisation of free reserves

Ans. (a)
Explanation: Section 63(3) of Companies Act, 2013, clearly states that the bonus shares shall not be issued in lieu of
dividend.

12. A company’s share’s face value is Rs. 10, book value is Rs. 20, Rights issue price is Rs. 30 and Market price Rs. 40,
while recording the issue of right share, the securities premium will be credited with
(a) Rs. 10
(b) Rs. 20
(c) Rs. 30
(d) None of the above

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 Ans. (b)
Explanation: The accounting treatment of rights share is the same as that of issue of ordinary shares. In case tights
shares are being offered at a premium, the premium account is credited to the securities premium account.
Since the face value of stock is Rs. 10 and Rights issue price is Rs. 30, the premium will be Rs. 20.

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