1 Share Capital - companion.shuchita.co.incompanion.shuchita.co.in/pdf/cs/Executive/Scanner SC/Scanner CS... · 1 Share Capital This Chapter Incl udes : Mea ning o f Sha res an d

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.


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


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%


(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)

Ans:- (a) (iii) Incorrect. (iv) Incorrect.(b) (i) (b); (ii) (a); (v) (b) (c) (iii) Shares

forfeited account.


are correct or incorrect:

(iii) Securities premium money can be distributed as dividend. (2 marks)


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).


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.


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


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


(c) 15 Years

(d) 20 Years.

(ii) Which one of the following should be deducted from the share capital to find

out paid-up share capital —

(a) Share forfeiture

(b) Discount on issue of shares

(c) Calls-in-arrears

(d) Calls-in-advance. (1 mark each)

Ans:-(a) (i) False;(v) True;(b) (iii) Redeemed (v) Pro-rata (c) (i) (d); (ii) (c).


true or false :

(i) Rights shares mean the shares which are issued to promoters for their services.

(2 marks)

(b) Write the most appropriate answer from the given options in respect of the

following :

(ii) Discount allowed on the re-issue of forfeited shares cannot exceed !

(a) 10% of the paid-up capital

(b) 10% of the capital re-issued

(c) The amount received on forfeited shares

(d) The amount not received on forfeited shares.

(iii) Redemption of preference shares of a company is !

(a) Compulsory

(b) Optional

(c) Conditional


(iv) Which method is legally allowed for redemption of preference shares !

(a) Issue of fresh equity shares

(b) Sale of assets of the company

(c) Issue of debentures

(d) Loan from the bank. (1 mark each)

(c) Re-write the following sentences after filling-in the blank spaces with appropriate

word(s)/figure(s) :

(ii) A company may allot fully paid-up shares to promoters or any other party for the

services rendered by them without payment is known as issue of shares

________ . (1 mark)

Ans:- (a) (i) False; (b) (ii) (c) The amount received on forfeited shares; (iii) (a)

compulsory; (iv) (a) issue of fresh equity shares; (c) (ii) Consideration other than

cash.


SHORT NOTES

2009 - June [2] (a) Write short notes on the following :

(ii) Issue of shares at a discount (3 marks)

2011 - June [3] (a) Write short notes on the following :

(iii) Lien on shares. (3 marks)

2012 - June [2] (c) Write a brief note on ‘buy-back of shares’. (3 marks)

Hint:-Applicable Section - 77A

DISTINGUISH BETWEEN

2008 - Dec [4] (a) Distinguish between the following :

(iii) 'Calls!in!arrears' and 'calls!in!advance'. (3 marks)

2011 - June [2] (a) Distinguish between the following :

(i) ‘Bonus shares’ and ‘rights shares’. (3 marks)

(iii) ‘Statutory books’ and ‘statistical books’. (3 marks)

Hint:- (iii) Applicable Sections - 49, 58A, 143, 150, 209 and 307.

DESCRIPTIVE QUESTIONS

2008 - Dec [3] (a) Comment on the following statements :

(i) As a matter of prudence, whole of free reserves should not be utilised in the

case of buy! back of shares.

(iii) In case of under! subscription of shares, question of returning the money does

not arise at all. (3 marks each)

Hint:- (i) Applicable Section — 77A.

2010 - June [4] (c) “Buy-back may be misused by the corporate entities at the cost of

innocent investors.” Give your comments. (3 marks)

2011 - June [4] (b) What are the conditions which must be fulfilled for redemption of

preference shares? (6 marks)

Hint:- Applicable Sections — 80 and 80 (5A)


PRACTICAL QUESTIONS

2008 - Dec [2] (b) Following is the balance sheet of Anupam Ltd. as on 31st March,2008 :Liabilities `

2,00,000, 14% Preference sharesof ` 100 each, fully called 2,00,00,000

Less : Calls in arrears 4,00,000 1,96,00,000@ ` 20 per share

10,00,000 Equity shares of ` 10

each, ` 8 per share called 80,00,000

Less : Calls-in-arrears 20,00079,80,000

Add : Calls-in-advance 10,000 79,90,000Securities premium 5,10,000General reserve 1,50,00,00010,000, 15% Debentures @ ` 1,000 each, fully paid 1,00,00,000

Current liabilities and provisions 10,00,0005,41,00,000

AssetsFixed assets 1,30,00,000Investments 28,00,000Other current assets 2,15,00,000Cash and bank balances 1,68,00,000

5,41,00,000On 1st April, 2008, the Board of directors decided that —

(i) The fully paid preference shares are to be redeemed at a premium of 4% on 1st

May, 2008 and for that purpose 6 lakh equity shares of ` 10 each are to be

issued at a premium of 5%.

(ii) 3,000 Equity shares owned by Mohan, an existing shareholder, who has failed

to pay the allotment money and the first call money @ ` 3 and ` 2.50 per share

respectively, equity shares are to be forfeited on 31st May, 2008.

(iii) The final call of ` 2 per share is to be made on 7th july, 2008 on equity shares.

All the above are duly complied with according to schedule. The amount due on the

issue of fresh issue and on final call are also duly received except from Sohan who had

failed to pay the first call for his 1,400 equity shares, has again failed to pay the final call

also. These shares of Sohan are to be forfeited on 31st August 2008.

Show the necessary journal entries. (9 marks)


2009 - June [4] (a) Jolly Ltd. has the following balance sheet as on 31st March, 2008:

Liabilities `

Share capital :

Issued, subscribed and fully paid-up (10,000 equity shares of `100 each) 10,00,000

5,000 Preference shares of `100 each 5,00,000

Capital reserve 1,00,000

Securities premium account 1,00,000

General reserve 2,00,000

Profit and loss account 1,00,000

Current liabilities 10,00,00030,00,000

AssetsFixed assets 22,00,000Current assets 8,00,000

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 —


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.


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.


2011 - Dec [3] (b) Reliable Ltd. furnishes you with following balance sheet as on 31st

March, 2011:

Balance Sheet

Liabilities ` in Crores

Share capital:

12% Redeemable preference shares @ ` 100 each, fully paid-up 75

Equity shares of ` 10 each, fully paid-up 25

Reserves and surplus:


Capital reserve 15

Securities premium 25

Revenue reserve 260

Current liabilities and provisions:

Current liabilities 40

440

Assets ` in Crores

Fixed assets 100

Less provision for depreciation 100 Nil

Investments (Market value ` 400 crore) 100

Current assets 340

440

The company redeemed preference shares on 1st April, 2011. It also bought back 50

lakh equity shares of ` 10 each at ` 50 per share. The payment for the above are made

out of the huge bank balance, which appeared as a part of current assets.

Make journal entries to record the above and prepare balance sheet as on 1st April,

2011 after redemption of preference shares and buy-back of equity shares.

(8 marks)

Ans:- Total of Balance Sheet ` 340.


2011 - Dec [4] (a) The balance sheet of Ashoka Ltd. as on 31st March, 2011 was as

follows:

Liabilities ` Assets `

Share Capital: Sundry assets 17,00,000

Authorised:

1,50,000 Equity shares of

` 10 each 15,00,000

Issued, subscribed, called-up and paid-up:

80,000 Equity shares of ` 7.50 per share

called and paid-up 6,00,000

Reserves and surplus:

Capital redemption reserve 1,50,000

Plant revaluation reserve 20,000

Securities premium 1,50,000

Development rebate reserve 2,30,000

Investment allowance reserve 2,50,000

General reserve 3,00,000 ________


17,00,000 17,00,000

The company wanted to issue bonus shares to its shareholders at the rate of one share

for every two shares held. Necessary resolution was passed. Give necessary journal

entries and prepare amended balance sheet. (6 marks)

Ans:- Total of Balance Sheet ` 17,00,000.


2012 - Dec [2] (a) The summarised balance sheet of AB Ltd. as on 31st March, 2012 is

as follows:

Equity and Liabilities `

Equity shares of `10 each `

` 8 called up 80,000

Less : calls in arrears

`2 per share 300 79,700

1,000, 11% preference shares

of `100 each fully paid-up 1,00,000

Less : calls in arrears on 250 shares 5,000 95,000

Securities premium 5,300

Investment allowance 55,000

General reserve 50,000

Profit and loss (Surplus) 90,000

Trade payables 25,000

4,00,000

Assets

Land and building 1,50,000

Plants 50,000

Furniture 25,000

Investments (Face value `50,000) 45,000

Stock in trade 20,000

Trade receivables 30,000

Cash at bank 80,000

4,00,000

The company resolved to :

(i) Realise investments at `40,000.

(ii) Forfeit equity shares on which calls are in arrears.

(iii) Issue 500, 14% debentures of `100 each at premium of 5%.

(iv) Forfeit preference shares on which the call money remained unpaid immediately

before the redemption of preference shares, holders of 200 shares paid their


dues before forfeiture.

(v) Re-issue the forfeited preference shares at `50 each.

(vi) Re-issue the forfeited equity shares at `12 each as `8 paid-up.

Pass necessary journal entries to give effect to the above. (6 marks)

CS Inter Gr. I

SHORT NOTES

2000 - June [1] {C} Write notes on the following :

(i) Lien on shares. (5 marks)

2002 - June [1] {C} Write notes on the following :

(v) Redemption of preference shares (5 marks)

DESCRIPTIVE QUESTIONS

2001 - Dec [2] (b) What is meant by 'sweat equity shares'? What are the conditions

which have to be fulfilled for issue of these shares? (10 marks)

2002 - Dec [2] (b) Can a company pay dividend on partly paid-up shares? Comment.

(3 marks)

2003 - June [1] {C} (b) State the conditions which are required to be satisfied by a

company for the purpose of buy-back of shares. (4 marks)

2004 - Dec [1] {C} Attempt the following :

(iv) What are the provisions of the Companies Act, 1956 with regard to maintenance

of books of account by a company? (5 marks)

2006 - June [1] {C} Attempt the following :

(ii) Who are responsible for the maintenance of books of account under the

Companies Act, 1956 ? (5 marks)

PRACTICAL QUESTIONS

1999 - Dec [3] (c) A company has a subscribed capital of 2,00,000 equity shares of ̀ 25

each, ` 20 per share called-up. The directors forfeited 200 equity shares held by a

shareholder who had failed to pay the first call made @` 10 per share. Later, the

directors reissued these forfeited shares as ` 20 per share paid up at ` 15 per share.

Pass the journal entries for forfeiture and re-issue of shares. (5 marks)

Ans:- Transfer to capital reserve account ` 1,000.



2000 - June [7] (b) XYZ Ltd. issued to public 3,00,000 equity shares of ` 10 each at a

premium of Re. 1 per share. The amount was payable as to ` 2 with application, ` 4

(including premium) on allotment and ` 5 on first and final call.

Applications totalled 6,11,000 shares. The Board of directors rejected applications

for 11,000 shares and made allotment on all the remaining applications on a pro rata

basis.

P to whom 300 shares had been allotted did not pay the balance of allotment

money and subsequently the call money. Q, who held 450 shares, did not pay the call.

Their shares were forfeited three months after making of the call. All the forfeited shares

were re-issued as fully paid-up to R at the rate of ` 11 per share.

You are required to pass journal entries for all the transactions including cash

transactions. (11 marks)

2001 - Dec [3] On 31st March, 2001, following was the balance sheet of New Era Ltd.:

Liabilities ` in lakhs Assets ` in Lakhs

Equity share capital Machinery 3,600

(Fully paid-up shares Furniture 452

of ` 10 each) 2,400 Investments 148

Securities premium 350 Stock 1,200

General reserve 930 Debtors 520

Profit and loss account 340 Cash at bank 740

12% Debentures 1,500

Sundry creditors 750

Sundry provisions 390

6,660 6,660

On 1st April, 2001, the company announced the buy-back of 25% of its equity

shares @ ̀ 15 per share. For the purpose, it sold all of its investments for ̀ 150 lakh and

issued 2,00,000 14% preference shares of ` 100 each at par, the entire amount being

payable with application.

The issue was fully subscribed. The company achieved the target of the buy-back.

Later, the company issued one fully paid up equity share of ` 10 by way of bonus

share for every four equity shares held by the equity shareholders.

Show journal entries for all the transactions including cash transactions.

(20 marks)

Hint:- ` (in lakhs)

Equity share capital 2,400

Less: Buy-back of 25% of shares 600

Equity share capital after buy-back 1,800


2002 - June [3] (a) The issued share capital of Kuber Ltd. consists of 2,00,000 equity

shares of ` 10 each fully paid up. The company offers new equity shares to its existing

shareholders on rights basis of 1:1, the equity shares of ` 10 each being offered at a

premium of ` 10 each which are payable as follows:

On Application On Allotment` `

Share capital 5 5

Securities premium 5 5

10 10

All the shareholders accepted the offer. One shareholder holding 600 shares paid

the full offer price with the application. Another shareholder holding 400 shares failed

to pay the allotment money and his shares were subsequently forfeited. The forfeited

shares were re-issued as fully paid-up for ` 8,000 in cash. Journalise the

abovementioned transactions. (7 marks)

2002 - Dec [1] {C} (c) The following are the figures extracted from the books of

Midways Ltd. as on 30th June, 2002:

`

5,000, 11% Preference shares of ` 100 each, ` 70 paid-up 3,50,000

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.


— 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.


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.


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:


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


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.


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 :


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.


(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).


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


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.


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)


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


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.


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

Documents

1 Share Capital - companion.shuchita.co.incompanion.shuchita.co.in/pdf/cs/Executive/Scanner SC/Scanner CS... · 1 Share Capital This Chapter Incl udes : Mea ning o f Sha res an d