MCQ on Redemption of Preference Shares: Multiple Choice Questions and Answers

MCQ on Redemption of Preference Shares



MCQ on Redemption of Preference Shares: Multiple Choice Questions and Answers


1. According to sec. 100 of the companies act, a company is not allowed to return to its shareholders the share money without the permission of the court.                      True

2. Permission of court is necessary if refund is made to preference share holders.                            False

3. According to sec. 80 of the companies act, partly paid shares can be redeemed.                            False

4. Redeemable Preference shares can be redeemed out of __________

a)      The sale proceeds of Investments
b)      The proceeds of a fresh issue of shares
c)       Share premium
d)      The proceeds of issue of debentures

5. Partly paid preference shares cannot be redeemed. True

6. Which of the following statements is NOT TRUE with regard to redemption of Preference shares

a)      Partly paid shares cannot be redeemed
b)      The redemption of Preference shares shall be taken as reduction of company’s authorized share capital
c)       When shares are issued for redemption in future, it will not be treated as increase in capital
d)      Preference share can be redeemed either out of the profit by capitalization or amount of fresh issue of shares.

8. Unclaimed dividends account is a liability of the company.                     True

9. The Capital Redemption reserve is created for the following reasons:
a)      To Maintain the capital intact
b)      To safeguard the interest company’s creditors
c)       Both of the above
d)      None of the above

10. Which of the following accounts can be transferred to capital redemption reserve account?
a)      General reserve account
b)      Forfeited shares account
c)       Profit prior to incorporation
d)      Securities premium account


12. According to sec. 100(1)(c) of the companies act, a company can pay back share capital which is in excess of need if:
a)      Authorised by articles
b)      Confirmation of the court
c)       Special resolutio is passed to that effect
d)      All of the above

Practical Problems (Try Yourself)

13. The company has 2,500, 11% redeemable preference shares of Rs.100 each.  These shares were due to be redeemed at a premium of 10%.  The company has the following profits:

Profit prior to incorporate = Rs.40,000
Capital reserve = Rs.40,000
Securities premium = Rs.20,000
General Reserve = Rs.85,000
Profit and loss a/c  = Rs.80,000

As the divisible profits income inadequate, the company issued the number amount of equity share of Rs.10 each at a discount of 10%.  What were the numbers of shares issued? 

(a)  10,000 Equity Shares 
(b) 9,000 Equity Shares 
(c ) 8,000 Equity Shares
(d) 7,500 Equity Shares  
(e) 7,000 Equity Shares

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