Higher Financial Accounting
(HFA)
MCQs: Redemption of preference share
Meaning
(1) A Preference Share is one which enjoys a -
(A) Preferential right regarding payment of dividend
(B) Preferential right regarding allotment of Share
(C) Preferential right regarding payment of dividend and return of Capital
(D) Preferential right regarding return of Capital
(2) Which of the following statements is false?
(A) The Maximum Time limit for redemption of Preference shares is 20 years
(B) Preference Shareholders are Creditors of a Company
(C) That part of the Authorized Capital which can be called up only in the event of liquidation of a Company is called Reserve Capital
(D) Capital redemption reserve can be utilized only for issuing Fully paid Bonus Shares
(3) AS per the Companies Act, 2013, Preference Shares which are issued by company engaged in infrastructural projects which are redeemable within Years.
(A) 20 years
(B) 30 years
(C) 22 years
(D) 24 years
Types of preference shares
(4) Unless otherwise stated, a Preference Share is always deemed to be -
(A) Cumulative, participating and non-convertible
(B) Non-cumulative, non-participating and nonconvertible
(C) Cumulative, non-participating and non-convertible
(D) Non-cumulative, participating and non-convertible
(5) A Preference Share which carries the right of sharing in the surplus left after paying Equity Dividend is called -
(A) Cumulative Preference Share
(B) Convertible Preference Share
(C) Participating Preference Share
(D) All of the above
(6) Which type of the following Shares have the right to receive dividends unpaid in prior years, whenever earnings become adequate?
(A) Participating Preference Shares
(B) Cumulative Preference Shares
(C) Callable Preference Shares
(D) Convertible Preference Shares
(7) The Companies Act, 2013 prohibits the issue of any Preference Share which is -
(A) Non-participating
(B) Non-redeemable
(C) Non-cumulative
(D) Non-convertible
(8) Redeemable Preference Shares issued by company not engaged in infra projects are those Shares on Which Capital is to be paid back within the stipulated period of -
(A) Not more than 20 yrs
(B) Not more than 5 yrs
(C) Not more than 15 yrs
(D) Not more than 10 yrs
Issue of shares
(9) As per Schedule Ill of the Companies Act, 2013, under which of the following heads is Premium on issue of Preference Shares shown in the Balance Sheet of a Company?
(A) Miscellaneous expenditure
(B) Debentures
(C) Current liabilities and provisions
(D) Reserves and surplus
(10) Hero Industries purchased a Plant from Hind industries for Rs. 10,00,000. The Company paid Rs. 2,00,000 in cash and agreed to allot 15% redeemable Preference Shares of Rs.100 each for the balance amount. How many 15% Preference Shares of Rs. 100 each will be allotted to the Vendor, if the shares are issued at a premium of 25%?
(A) 6,400 shares
(B) 7,200 shares
(C) 8,000 shares
(D) 7,580 shares
Redemption of Shares
(11) Preference Shares can be redeemed
(A) Only if they are fully paid
(B) Even if they are partly paid up
(C) Only on receipt of Court permission
(D) Only if they are not paid up
(12) Preference share cannot be redeemed, unless they are
(A) Re-issued
(B) Partly paid
(C) Fully paid
(D) Transferred
(13) Redemption of Preference Share Capital can be done -
(A) Out of the profits of the Company which could be otherwise available for dividend
(B) Out of proceeds of a fresh issue of Shares made for the purpose of redemption
(C) When the shares are not fully paid up
(D) Either (a) or (b)
(14) Which of the following cannot be utilized for redemption of Preference Shares?
(A) The proceeds of fresh issue of Equity Shares
(B) The proceeds of issue of debentures
(C) The sale proceeds of investments
(D) The proceeds of issue of fixed deposit
(15) On redemption of Preference Shares money cannot be arranged (for payment to Shareholders) from -
(A) Sale of investment
(B) Issue of new Shares
(C) Bank loan or overdraft
(D) Sale of fixed assets
(16) If Preference Shares are redeemed out of the fresh issue of Equity Shares, which account will be credited?
(A) Capital Redemption Reserve Alc
(B) Capital Reserve Alc
(C) Equity Share Capital Ac
(D) Preference Share Capital A/c
(17) Which of the following condition should be satisfied to redeem the Preference Shares?
(A) No such shares be redeemed unless they are fully paid.
(B) Where shares are redeemed out of profits, a sum equal to nominal value of Shares redeemed must be transferred to Capital Redemption Reserve.
(C) Capital Redemption Reserve is available only for issue of fully paid bonus shares.
(D) All of these
(18) Which of these is not one of the conditions for redemption of Redeemable Preference Share?
(A) Must be fully paid
(B) Premium of redemption may be paid out of existing Share Premium Alc
(C) Can be paid out of divisible profits only
(D) None of the above
(19) If Preference Shares are redeemed at premium such premium may be provided out of-
(A) Security Premium Alc
(B) Share Forfeited A/c
(C) Capital Redemption Reserve Alc
(D) Proceeds of fresh issue of Shares
(20) O Ltd has redeemed its 12% Preference Shares of Rs. 2,00,000 at a premium of 4%. To meet the redemption, it has issued Rs. 1,98,000 Shares of Rs. 20 each at a premium of 5%. The balance outstanding to the credit of Share premium Alc after adjusting premium on redemption of Preference Shares will be -
(A) Rs.1,900
(B) Rs. 8,000
(C) Rs. 1,904
(D) Nil
(21) A Company issued 15,000, 9% Preference Shares of 100 each at 5% discount and 2,00,000 Equity
Shares of Rs. 10 each at 10% premium. Full amount was received from the applicants in one installment. Net balance in Securities Premium Ac will be -
(A) Rs. 2,00,000
(B) RS. 1,25,000
(C) Cannot be determined
(D) Rs. 75,000
(22) Indigo Ltd had 9,000, 10% Redeemable Preference Shares of Rs. 10 each, fully paid up. The Company
decided to redeem these Preference Shares at par by the issue of sufficient number of Equity Shares of Rs. 10 each fully paid up at a discount of 10%. The number of Equity Shares issued should be -
(A) 10,000
(B) 11,000
(C) 9,000
(D) None of the above
(23) A Company's Balance Sheet contains 1.6 Lakhs fully paid 10% Redeemable Preference shares and 1,00,000 as Revenue Reserve. It decides to redeem the Shares at 5% premium by maximum utilisation of earnings and from fresh issue of Shares.
If the issue is made at 20% premium, the minimum amount of fresh Equity issue will be -
(A) Rs. 36,000
(B) Rs. 60,000
(C) RS. 37,000
(D) Rs. 28,800
(24) Following are details of ABC Ltd-
• Outstanding Redeemable Preference Shares = Rs.3,00,000.
• General Reserve = Rs. 1,50,000.
• Security Premium Balance = Rs. 35,000
• Fresh issue of Shares to be made at 10% discount. The value of fresh issued shares will be
(A) Rs. 1,66,667
(B) Rs. 1,50,000
(C) Rs. 1,85,000
(D) Rs. 1,80,000
(25) Determine the amount of fresh issue of Shares from the following information relating to Shagoon Leather Works Ltd-
• Redeemable Preference Shares Rs. 2,00,000
• Premium on redemption 10%
• Divisible profits available Rs. 60,000 Balance in General Reserve Rs. 40,000
• Balance in Security Premium A/c Rs. 25,000 Fresh issue to be made at a discount of 10%
(A) Shares of a nominal amount of Rs.1,00,000
(B) Shares of a nominal amount of Rs.1,11,111
(C) Shares of a nominal amount of Rs. 90,000
(D) None of the above
(26) Ajay Ltd decides to redeem 10,000 preference shares of Rs.10/- each at 10% premium. Balance in P& L A/c is Rs. 65,000 and securities premium A/c is Rs. 5,000. You are required to calculate the minimum number of equity shares at the rate of 10/- each at 20% discount
.
(A) 3125
(B) 5625
(C) 5000
(D) None
Capital Redemption Reserve
(27) To the extent Preference Shares have been redeemed out of profits, amount equal to the face value of Preference Shares redeemed should be transferred to -
(A) Development Rebate reserve
(B) General reserve
(C) Sinking fund
(D) Capital redemption reserve
(28) The balance of Capital Redemption Reserve Account is a available for -
(A) Redemption of Redeemable Preference Shares
(B) Redemption of Redeemable debentures
(C) Re-organization of Share Capital
(D) Issue of fully paid Bonus Shares
(29) 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) Share premium account
(30) Calculate the amount to be transferred to Capital Redemption Reserve A/c in each of the following cases
(i) Redeemable Preference Shares - Rs.50,000 redeemable at par. New issue of Shares - Rs.30,000 at par.
(A) Rs. 30,000
(B) Rs. 50,000
(C) Rs. 20,000
(D) None of these
(ii) Redeemable Preference Shares - Rs. 50,000 redeemable at 5% premium. New issue of Shares - Rs. 30,000 at par.
(A) Rs. 20,000
(B) Rs. 22,500
(C) Rs.25,000
(D) None of these
(iii) Redeemable Preference Shares - Rs. 50,000 redeemable at par. New issue of Shares- Rs.30,00o at premium of 5%.
(A) Rs 20,000
(B) Rs. 30,000
(C) Rs. 21,500
(D) None of these
(iv) Redeemable Preference Shares - Rs.50,000 redeemable at par. New issue of Shares - Rs.30,000 at discount of 10%.
(A) Rs. 20,000
(B) Rs. 23,000
(C) Rs. 27,000
(D) None of these
(v) Redeemable Preference Shares - Rs.50,000 redeemable at 5% premium. New issue of Shares - Rs. 30,000 at premium of 10%.
(A) Rs. 20,000
(B) Rs. 25,000
(C) Rs. 22,000
(D) None of these
(31) lf for the redemption of Preference Share Capital of Rs.1,00,000, 5,000 Equity Shares of Rs.10 each are issued at a discount of 10%, the amount to be transferred to Capital Redemption Reserve Fund will be -
(A) Rs. 50,000
(B) Rs. 60,000
(C) Rs.55,000
(D) Rs. 45,000
(32) Preference Shares amounting to Rs.1,00,000 are redeemed at a premium of 5% by issue of Shares amounting to Rs.50,000 at a premium of 10%. The amount to be transferred to Capital redemption reserve account will be -
(A) Rs.50,000
(B) Rs.55,000
(C) Rs.57,500
(D) Rs.45,000
(33) Preference Shares amounting to Rs.2,50,000 are redeemed at a premium of 5%, by issue of Shares amounting to Rs.1,50,000 at a premium of 10%. The amount to be transferred to Capital redemption reserve will be -
(A) Rs. 1,11,000
(B) Rs. 2,00,000
(C) Rs. 1,05,000
(D) Rs. 1,00,000
(34) Redeemable Preference Shares of Rs. 1,00,000 are redeemed at par for which purpose fresh equity shares of Rs. 80,000 are issued at a discount of 10%. The amount to be transferred to Capital Redemption Reserve Fund will be -
(A) Rs. 80,000
(B) Rs. 1,00,000
(C) Rs. 28,000
(D) Rs. 20,000
(35) Preference Shares of Rs.2 Lakhs are redeemed at par for which fresh Equity Shares of Rs.80,000 are issued a 10% premium. What amount should be transferred to Capital Redemption Reserve ?
(A) Rs. 1,12,000
(B) Rs. 1,20,000
(C) Rs. 80,000
(D) Rs. 2,00,000
(36) A Limited Company has to redeem Redeemable Preference Shares of the value of Rs.1,00,000 for which the company has issued 3,000 Equity Shares of Rs.10 each at a premium of 10%. The amount to be transferred to Capital redemption reserve account will be -
(A) Rs. 70,000
(B) Rs. 1,00,000
(C) Rs. 97,000
(D) Rs. 67,000
(37) S Ltd issued 2,000, 10% Preference Shares of Rs.100 each at par which is redeemable at a premium of 10%. For the purpose of redemption, the Company issued 1,500 Equity Shares of Rs.100 each at a premium of 20% per Share. At the time of redemption of Preference Shares, the amount to be transferred by the Company to the Capital Redemption Reserve Account will be -
(A) Rs. 2,20,000
(B) Rs. 2,00,000
(C) Rs.40,000
(D) Rs. 50,000
(38) Rich Ltd had 3,000, 12% Redeemable Preference Shares of 100 each, fully paid up. The Company Issued 25,000 Equity Shares of Rs.10 each at par and 1,000 14% debentures of Rs.100 each. All amounts were received in full. The payment to Preference Shareholders was made in full. The amount to be transferred to Capital Redemption Reserve A/c is -
(A) Rs.50,000
(B) Rs.3,00,000
(C) Rs. 2,00,000
(D) Nill
(39) Ankush Ltd had issued 10,000, 10% Redeemable Preference Shares of Rs.100 each, fully paid up. The Company decided to redeem these Preference Shares at par, by issue of sufficient number of Equity Shares of Rs.10 each at a premium of 2 per Share as fully paid up. The amount to be transferred to Capital Redemption Reserve Account will be -
(A) Rs.12,00,000
(B) Rs.8,00,000
(C) Rs. 10,00,000
(D) Nil
(40) Light Ltd has 10,000, 5% Preference Shares of Rs.10 each to be redeemed after 5 years. The Company forfeited 500 Preference Shares on which final call of Rs.2 has not been received after due notice and cancelled these Shares on account of redemption. Remaining Shares were redeemed out of reserves of the Company. The amount to be credited to Capital redemption reserve will be -
(A) Rs. 99,500
(B) Rs. 99,000
(C) Rs. 95,000
(D) Rs. 1,00,000
(41) T Ltd issued 30,000, 12% Preference Shares of Rs.10 each at premium of 5%, which are Redeemable at par. The Company did not have sufficient cash resources to redeem the Preference Shares. Hence, it issued 20,000, 14% Debentures of Rs.10 each at a premium of 10%. The amount to be transferred to Capital Redemption Reserve A/c is -
(A) Rs. 1,10,000
(B) Rs. 3,00,000
(C) Rs. 1,00,000
(D) Rs. 85,000
(42) A Company wishes to redeem its Preference Shares amounting to Rs.1,00,000 at a premium of 5% and for this purpose issued 5,000 Equity Shares of 10 each at a premium of 5%. The Company also has a balance of Rs.1,00,000 as General Reserves and Rs.50,000 in P& L A/c. The amount to be transferred to Capital Redemption Reserve A/c is -
(A) Rs. 52,500
(B) Rs. 50,000
(C) Rs. 1,05,000
(D) Rs. 47,500
(43) During the year 2008-2009, T Ltd issued 20,000, 12%% Preference Shares of 10 each at a premium of 5%, which are Redeemable after 4 years at par. During the year 2013-2014, as the Company did not have sufficient cash resources to redeem the Preference Shares, it issued 10,000, 14% debentures of 10 each at a premium of 10%. At the time of redemption of 12% Preference Shares, the amount to be transferred to Capital redemption reserve is -
(A) Rs. 1,10,000
(B) Rs. 2,00,000
(C) Rs. 1,00,000
(D) Rs. 90,000
(44) X Co Ltd has to redeem 1,000 Preference Shares of Rs.100 each at 10% premium. It issues 5,000 Equity Shares of Rs.10 each at 10% premium. General Reserve amount transferred to Capital Redemption reserve will be -
(A) Rs.1,00,000
(B) Rs.50,000
(C) Rs.55,000
(D) Rs.1,10,000
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