Issue of shares MCQ Test - 3

An issue of shares that is not a public issue but offered to a selected group of persons is called:

• (A) Public offer

• (B) Private placement of shares

• (C) Initial public offer

• (D) Preferential allotment

Answer explanation

Private placement refers to the process of selling securities to a specific group of investors, typically institutions and accredited investors, rather than offering them to the general public.

Reserve capital is not a part of:

• (A) Authorised Capital

• (B) Subscribed Capital

• (C) Unsubscribed Capital

• (D) Issued Capital

A situation where number of shares offered to the public for subscription are less than the number of shares for which applications have been received is called:

• (A) Under subscription

• (B) Fully subscribed

• (C) Over subscription

• (D) Both (B) and (C)

Answer explanation

When shares offered > share application = Under subscription

Shares offered < share application = Over subscription

Shares offered = share application = Fully subscribed

ABC Ltd. was registered with an authorised capital of ₹5,00,00,000 divided into shares of ₹10 each. The company offered for subscription 4,00,000 shares. Applications were received for 4,50,000 shares. Applications for 50,000 shares were rejected. A shareholder holding 10,000 shares failed to pay the first and final call of ₹2 per share. The subscribed capital of the company is:

• ₹5,00,00,000

• ₹40,00,000

• ₹45,00,000

• ₹39,80,000

Answer explanation

Amount received on issue of 4,50,000 shares = ₹45,00,000

Amount rejected on 50,000 shares = ₹5,00,000

Net Amount = ₹40,00,000

Amount not paid on 10,000 shares (10,000 × 2)= ₹20,000

Amount of subscribed capital = ₹39,80,000

• A

• B

• C

• D

Answer explanation

When the asset is acquired from the vendor, the sundry asset account is debited and vendor ’s account is credited with that amount.

Statement I: A company is formed according to the provisions of Law enforced from time to time.

Statement II: Generally, in India, the companies are formed and registered under Companies Law except in the case of Banking and Insurance companies for which a separate Law is provided for.

Choose the correct option from options given below:

• (A) Statement I is correct and statement II is wrong.

• (B) Statement II is correct and statement I is wrong.

• (C) Both the statements are correct.

• (D) Both the statements are wrong.

Statement I: The company being an artificial person created by law continues to exist irrespective of the changes in its membership.

Statement II: Members may come and go but the company continues.

Choose the correct option from options given below:

• Statement I is correct and statement II is wrong.

• Statement II is correct and statement I is wrong.

• Both the statements are correct.

• Both the statements are wrong.

Statement I: A company can generate its own capital which has necessarily to be collected from several persons.

Statement II: Since the number of shareholders is very large, a separate capital account cannot be opened for each one of them.

Choose the correct option from options given below:

• Statement I is correct and statement II is wrong.

• Statement II is correct and statement I is wrong.

• Both the statements are correct.

• Both the statements are wrong.

Answer explanation

Explanation: A company, being an artificial person, cannot generate its own capital which has necessarily to be collected from several persons. These persons are known as shareholders and the amount contributed by them is called share capital.Since the number of shareholders is very large, a separate capital account cannot be opened for each one of them. Hence, innumerable streams of capital contribution merge their identities in a common capital account called as ‘Share Capital Account’.

Assertion (A): A Company is Registered with an authorised capital of 5,00,000 Equity Shares of `10 each of which 2,00,000 Equity shares were issued and subscribed. All the money had been called up except `2 per share which was declared as ‘Reserve Capital’. The Share Capital reflected in the balance sheet as ‘Subscribed and Fully paid up’ will be Zero.

Reason (R): Reserve Capital can be called up only at the time of winding up of the company.

• Both assertion (A) and reason (R) are true and reason (R) is the correct explanation of assertion (A).

• Both assertion (A) and reason (R) are true but reason (R) is not the correct explanation of assertion (A).

• Assertion (A) is true but reason (R) is false.

• Assertion (A) is false but reason (R) is true

Assertion (A): Tara Ltd. gave shares worth `1,50,000 to the vendor from whom it bought a machinery.

Reason (R): The company can issue shares as against the payment to the vendors.

• (A) Both assertion (A) and reason (R) are true and reason (R) is the correct explanation of assertion (A).

• Both assertion (A) and reason (R) are true but reason (R) is not the correct explanation of assertion (A).

• Assertion (A) is true but reason (R) is false.

• Assertion (A) is false but reason (R) is true.

Answer explanation

Instead of paying the amount, the company can issue shares to the vendors from the authorised share capital, at par or premium.