Multiple choice questions and answers
1. In case of sub-division of share capital the total number of shares—
- Increases
- Decreases
- Does not change.
Answer :- Increases
2. If the shares of smaller denomination-are converted into the shares of higher denomination without changing the total amount of share capital, then it is a case of—
- Consolidation of share capital
- Sub-division of share capital
- Decrease in unissued share capital.
Answer :- Consolidation of share capital
3. When a company converts its equity shares into the capital stock, then the account to be credited is —
- Equity share capital account
- Equity capital stock account
- No entry is required.
Answer :- Equity capital stock account
4. A Ltd. with a share capital of 10,000 equity shares of Rs. 10 each fully paid decides to repay Rs. 5 per share thus making each share of Rs. 5 fully paid. It is a case of—
- Reducing share capital by returning the excess capital
- Reducing the liability on account of uncalled capital
- Reducing the paid-up capital.
Answer :- Reducing share capital by returning the excess capital
5. For writing off the accumulated Josses under the scheme of capital reduction, we debit—
- Share capital account
- Accumulated losses account
- Capital reduction account.
Answer :- Capital reduction account.
6. If there is any balance in the capital reduction account after writing off all the accumulated losses, then the same is transferred to —
- Share capital account
- Capital reserve account
- General reserve account.
Answer :- Capital reserve account
7. A company has issued capital of 10,000 equity shares of Rs. 10 each fully paid. It decides to convert its capital into 20,000 equity shares of Rs. 5 each. It is a case of
- Consolidation of share capital
- Sub-division of share capital
- Decrease in unissued share capital.
Answer :- Sub-division of share capital
8. If the creditors are willing to reduce their claims against the company, (hen the amount of reduction in their claim will be transferred to
- Share capital account
- Creditors account
- Capital reduction account.
Answer :- Capital reduction account.
9. Any loss on revaluation of the assets at the time of internal reconstruction, will be charged from—
- Revaluation account
- Share capital account
- Capital reduction account.
Answer :- Capital reduction account.
10. In which of the following cases, procedure of reduction of capital is not called for:
- Redemption of preference shares
- Forfeitures of shares
- Surrender of shares or gift of shares
- All of the above
Answer :- All of the above
11. In a scheme of reorganization amount of shares surrendered by shareholders is transferred to:
- Capital reduction account
- Shares surrendered account
- Capital reserve account
- Reserve capital account
Answer :- shares surrendered account
12. Amount sacrificed by shareholders are credited to:
- Capital reduction account
- Shares surrendered account
- Capital reserve account
- Reserve capital account
Answer :- Capital reduction account
13. To carry out capital reduction, permission is required from:
- The Competent Court
- Company law Board
- Central government
- SEBI
Answer :- The Competent Court
State whether the following statements are “True” or “False”:
14. Reduction of capital is unlawful except when sanctioned by the court.
Answer :- True
15. According to sec. 94 of the companies act, a limited company can increase, sub-divide or consolidate all or part of its existing share if authorised by its articles of association.
Answer :- True
16. Redemption of preference shares in accordance with the provisions of section 80 is reduction of preference share capital.
Answer :- False
17. A company must pass a special resolution for reduction of capital.
Answer :- True
18. The word “And reduced” cannot be added to the name of the company if no direction has been given by the court.
Answer :- True
19. Alteration of share capital can be affected by passing an ordinary resolution.
Answer :- True
20. Cancellation of unissued capital is also a case of capital reduction
Answer :- True
21.Only unsuccessful companies undertake capital reduction.
Answer :- True
22. No journal entry is required for cancellation of unissued share capital.
Answer :- True
23. Consent of creditors is not required if capital reduction involves the writing off of paid up capital lost or not represented by available assets.
Answer :- True
25. A company is free to reduce or extinguish the uncalled liability of its members.
Answer :- False
26. Consent of creditors is required if capital reduction involves diminution of liability regarding uncalled capital or return of paid up capital.
Answer :- True
Try Yourself
Match the following
|
a) X Ltd. Having a share capital of Rs. 500000 divided into 50000 shares of Rs. 10 each, consolidated the shares into 5000 shares of Rs. 100 each. |
Equity share capital A/c Dr. 500000 Equity Stock A/c Cr. 500000 |
|
b) X Ltd. Having a share capital of Rs. 500000 divided into 5000 shares of Rs. 100 each, subdivided the shares into 50000 shares of Rs. 10 each. |
Share Capital A/c (10) Dr. 500000 Share Capital A/c (100) Cr. 500000 |
|
c) X Ltd. Having a share capital of Rs. 500000 divided into 5000 shares of Rs. 100 each, converts it into stock. |
Share Capital A/c (100) Dr. 500000 Share Capital A/c (10) Cr. 500000 |