Accounting for Share Capital - Class 12 Accountancy - Chapter 5 - Notes, NCERT Solutions & Extra Questions
Renews every month. Cancel anytime
Extra Questions - Accounting for Share Capital | NCERT | Accountancy | Class 12
Forfeited shares are sold by way of:
A) public offering
B) prospectus
C) auction
D) none of these
The correct answer is C) auction.
Forfeited shares are typically sold through an auction. This method allows the company to recover any unpaid amounts on these shares by selling them to the highest bidder.
A limited company offered for subscription 10,000 Equity Shares of Rs 10 each at a premium of Rs 2 per share and 5,000, 10% Preference Shares of Rs 10 each at par. The amount on equity shares was payable as follows:
On Application Rs 3 per share
On Allotment Rs 5 per share (including a premium)
On First Call Rs 4 per share
The amount of preference shares was payable as follows:
On Application Rs 3 per share
On Allotment Rs 4 per share
On First Call Rs 3 per share
All the shares were fully subscribed, called-up, and paid. Record these transactions in the cash book of the company.
Solution
The transaction records within the cash book (exclusive to the bank column) after the complete subscription, call-up, and payment of both equity and preference shares are as follows:
Dr. CASH BOOK (Bank Column)
Particulars | Rs. |
---|---|
Equity Share Application Account | 30,000 |
10% Preference Share Application Account | 15,000 |
Equity Share Allotment Account | 50,000 |
10% Preference Share Allotment Account | 20,000 |
Equity Share First and Final Call Account | 40,000 |
10% Preference Share First and Final Call Account | 15,000 |
Total (Balancing Figure) | 1,70,000 |
Explanation of the Entries:
Equity Share Application Account: $10,000 \text{ shares} \times \text{Rs. } 3 \text{/share} = \text{Rs. } 30,000$
10% Preference Share Application Account: $5,000 \text{ shares} \times \text{Rs. } 3 \text{/share} = \text{Rs. } 15,000$
Equity Share Allotment Account (including premium): $10,000 \text{ shares} \times \text{Rs. } 5 \text{/share} = \text{Rs. } 50,000$
10% Preference Share Allotment Account: $5,000 \text{ shares} \times \text{Rs. } 4 \text{/share} = \text{Rs. } 20,000$
Equity Share First and Final Call Account: $10,000 \text{ shares} \times \text{Rs. } 4 \text{/share} = \text{Rs. } 40,000$
10% Preference Share First and Final Call Account: $5,000 \text{ shares} \times \text{Rs. } 3 \text{/share} = \text{Rs. } 15,000$
Therefore, the total amount credited to the bank account (balance carried down) from the issue of shares is Rs. 1,70,000.
Mr. Harshal purchased 520 shares of Face Value ₹10 when the Market value of the share was ₹35. The company had given a 20% dividend. What is the rate of return on investment?
A) 0.571% B) 2% C) 5.71% D) 20%
The correct answer is C, 5.71%. Here's the breakdown of the computation to arrive at this result:
Face Value (FV) of each share = ₹10
Market Value (MV) of each share = ₹35
Number of shares purchased = 520
To find the total amount invested, we multiply the number of shares by the market value per share: $$ \text{Sum invested} = \text{Number of shares} \times \text{Market Value per share} = 520 \times 35 = ₹18,200 $$
Dividend percentage given by the company = 20%
Dividend received for each share: $$ \text{Dividend per share} = 20% \text{ of Face Value} = 0.20 \times 10 = ₹2 $$
Total dividend received for all shares: $$ \text{Total dividend} = \text{Number of shares} \times \text{Dividend per share} = 520 \times 2 = ₹1,040 $$
To determine the rate of return on investment: $$ \text{Rate of return} = \left( \frac{\text{Total dividend received}}{\text{Total Sum invested}} \right) \times 100 = \left( \frac{1040}{18200} \right) \times 100% = 5.71% $$
Thus, the rate of return on Mr. Harshal's investment is 5.71%.
If opening capital is less than closing capital, it shows: (a) Loss (b) Profit (c) No Profit; No Loss (d) Profit if no additional capital is introduced.
The correct answer is:
- (b) Profit
When the opening capital is less than the closing capital, this typically indicates a Profit has been made during the period, assuming no additional capital was introduced. Thus, option (b) is correct.
The total of purchase book is posted to the $\qquad$ of purchase account.
A. Debit
B. Credit
C. Either debit or credit
D. None of the above
The correct answer is A. Debit.
The purchase account is consistently debited with the total amount from the purchases, indicating the total of the purchase book is posted on the debit side of the purchase account.
In case of forfeiture of shares, the received part of the share capital is linked with which account?
A. share forfeiture
B. calls in arrears
C. share capital
D. bank
The correct answer is A. share forfeiture.
In instances where shares are forfeited, the money received up to that point is associated with the share forfeiture account. This is because the received amount represents a gain from the forfeiture.
Shares and mutual funds are uncertain modes of investment.
A) True
B) False
The correct answer is A) True.
Mutual funds and shares are forms of investments where your money is used to purchase a variety of financial assets. When companies need capital for their operations, they can choose to either borrow money as debt or invite investors to buy shares, thereby providing equity.
Investing in shares means you own a part of the company. If the company performs well, the value of your shares increases and you may receive dividends, leading to profits. Conversely, if the company faces financial difficulties, the value of your shares can decrease, resulting in losses for you as a shareholder.
Similarly, mutual funds pool money from many investors to purchase a diversified portfolio of stocks, bonds, or other securities. This diversification helps reduce risk, but it does not eliminate it completely. The performance of the investments within the fund dictates the potential for profit or loss.
Since both investment methods are subject to market conditions and other external factors, they inherently carry a degree of uncertainty. Thus, stating that shares and mutual funds are uncertain modes of investment is indeed true.
What are the functions of a stock exchange?
Functions of a Stock Exchange
The stock exchange serves several critical functions in the financial world. Here are the key roles it plays:
-
Provides Liquidity and Marketability:
- The stock exchange offers a platform where existing securities can be bought and sold, granting both liquidity and marketability. This encourages individuals and institutions to invest in shares knowing they can readily convert these investments into cash.
-
Determines Share Prices:
- Share prices on a stock exchange are determined by the forces of demand and supply. This mechanism ensures that the price of shares reflects their true market value based on current investor sentiments and economic conditions.
-
Ensures a Safe and Fair Market:
- It plays a crucial role in ensuring that all dealings within the exchange are conducted in a fair and orderly manner, thus protecting the interests of the investing public. Regulatory frameworks and monitoring by the stock exchange guarantee transparency and fairness.
-
Channels Savings into Productive Investments:
- By offering a mechanism for disinvestment and reinvestment, stock exchanges channelize individual and institutional savings into the most productive economic uses, enhancing the overall growth and financial health of society.
When a discount is given to the customers, what will be the impact on capital?
A) Increases
B) Decreases
C) No impact
D) None of these
The correct answer is B) Decreases.
Discounts given to customers represent an expense to the business. As expenses increase due to these discounts, the capital, or the net assets of the business, will decrease. Therefore, offering discounts generally leads to a reduction in capital.
Pass journal entries for the Forfeiture and Re-issue in the following cases:
(a) X Ltd. forfeited 200 shares of Ravi of Rs 10 each, Rs 8 called up, on which he had paid application and allotment money of Rs 3 per share. Out of these, 100 shares were re-issued as fully paid up for Rs 8 per share.
(b) Y Ltd. forfeited 300 shares of Rs 10 each, Rs 7 called up, for non-payment of First Call of Rs 2 per share. Out of these, 100 shares were immediately re-issued at Rs 6 per share.
(c) Z Ltd. forfeited 600 shares of Rs 10 each, on which the first call of Rs 3 per share was not received; the second and final call of Rs 2 per share has not yet been called. Out of these, 200 shares were re-issued as Rs 8 paid-up for Rs 7 per share.
Journal Entries for Forfeiture and Re-issue of Shares:
(a) Case:
X Ltd.
-
Forfeiture of 200 shares:
Dr. Share Capital A/c (200 shares x Rs 8) 1600 Cr. Calls in Arrear A/c 1000 Cr. Share Forfeiture A/c 600 (Forfeiture of 200 shares of Ravi)
-
Re-issue of 100 shares at Rs 8 per share as fully paid:
Dr. Bank A/c 800 Cr. Share Forfeiture A/c 800 (100 shares re-issued, fully paid at Rs 8 per share)
-
Transfer of excess in Share Forfeiture A/c to Capital Reserve:
Dr. Share Forfeiture A/c 200 Cr. Capital Reserve A/c 200 (Profit on re-issue transferred to Capital Reserve)
(b) Case:
Y Ltd.
-
Forfeiture of 300 shares for non-payment of the first call:
Dr. Share Capital A/c (300 shares x Rs 7) 2100 Cr. Share First Call A/c 600 Cr. Share Forfeiture A/c 1500 (Forfeiture of 300 shares)
-
Re-issue of 100 shares at Rs 6 per share:
Dr. Bank A/c 600 Cr. Share Capital A/c 600 (Re-issue of 100 shares at Rs 6 per share)
-
Transfer of excess in Share Forfeiture A/c to Capital Reserve:
Dr. Share Forfeiture A/c 400 Cr. Capital Reserve A/c 400 (Profit on re-issue transferred to Capital Reserve)
(c) Case:
Z Ltd.
-
Forfeiture of 600 shares for non-payment of the first call:
Dr. Share Capital A/c (600 shares x Rs 8) 4800 Cr. Share First Call A/c 1800 Cr. Share Forfeiture A/c 3000 (Forfeiture of 600 shares)
-
Re-issue of 200 shares at Rs 7 per share as Rs 8 paid-up:
Dr. Bank A/c 1400 Dr. Share Forfeiture A/c 200 Cr. Share Capital A/c 1600 (Re-issue of 200 shares at Rs 7 per share)
-
Transfer of excess in Share Forfeiture A/c to Capital Reserve:
Dr. Share Forfeiture A/c 800 Cr. Capital Reserve A/c 800 (Profit on re-issue transferred to Capital Reserve)
Calculation of Profits and Losses on Re-issues:
-
(a) Profit on 100 re-issued shares: $$ \frac{600}{2} = 300 \text{ (total profit)} - (100 \text{ shares} \times \text{ Rs } 2) = 200 \text{ (loss)}, \text{ transferred to Capital Reserve} = 100. $$
-
(b) Profit on 300 shares: $$ \frac{1500}{3} = 500 \text{ (profit per 100 shares)} - (100 \text{ shares} \times \text{ Rs } 1) = 400 \text{ (transferred)}. $$
-
(c) Profit on 600 shares: $$ \frac{3000}{3} \times 2 = 2000 \text{ (profit)} - (200 \text{ shares} \times \text{ Rs } 1) = 800 \text{ (transferred)}.
Which of the following is not applicable to responsibility accounting?
A) Investment centre
B) Accounting centre
C) Profit centre
D) Cost centre
The correct answer is B) Accounting centre.
Accounting centre is not applicable to responsibility accounting. Responsibility accounting typically involves centers such as Investment centre, Profit centre, and Cost centre where managers are accountable for their operational results and financial outcomes.
From the following information, calculate capital at the beginning:
Items | (Rs.) |
---|---|
Capital at the end of the year | 4,00,000 |
Drawing made during the year | 60,000 |
Fresh capital introduced during the year | 1,00,000 |
Profit of the current year | 80,000 |
Statement Showing Capital at the Beginning of the Year
Particulars | Amount (Rs.) |
---|---|
Capital at the end of the year | 4,00,000 |
Add: Drawings made during the year | 60,000 |
Subtotal | 4,60,000 |
Less: Fresh capital introduced | 1,00,000 |
Less: Profit of the current year | 80,000 |
Capital at the beginning of the year | 2,80,000 |
Explanation:
To determine the capital at the beginning of the year, we need to make an adjustment to the capital at the end of the year by considering the drawings made during the year, the fresh capital introduced, and the profit of the current year.
Capital at the end of the year is given as Rs. 4,00,000.
Add the drawings made during the year, which amounts to Rs. 60,000, to the capital at the end.
This gives us a Subtotal of Rs. 4,60,000.
Next, subtract the fresh capital introduced during the year, Rs. 1,00,000.
Finally, subtract the profit for the current year, Rs. 80,000.
Following these steps, the capital at the beginning of the year is calculated as Rs. 2,80,000.