Which Method Is Legally Allowed for Redemption of Preference Shares Mcq
Question 53. The general accounts of MN Ltd. show the following balances: 14% preferred shares (₹ 100) – 5,00,000 Capital reserve – 1,00,000 Securities premium account – 1,00,000 General reserve – 2,00,000 profit and loss account – 1,00,000 preferred shares must be repurchased at a premium of 10%. For the purposes of this redemption, at least one new issue of shares of ₹100 each must be made. No. Number of shares to be issued = ? (A) 2,000 shares (B) 1,500 shares (C) 2,500 shares (D) 3,000 shares Answer: (A) 2,000 shares (c) If paid at least 50% of the par value of the shares Question 13. If a premium is to be paid on redemption of the preferred share, this premium is -….. (A) On profits that would otherwise be available for dividends, i.e. free reserve (B) On the premium account for securities (C) (A) or (B) (D) None of the above: (C) (A) or (B) Question 1.
Preferred shares are those that entitle you to preferential rights to -………. (A) Payment of a fixed rate dividend (B) Return of capital upon dissolution of the company (C) Both (A) AND (B) (D) EITHER (A) OR (B) Answer: (c) Both (a) and (b) Question 24. To whom can free shares or subscription shares be issued? (a) Shareholders (B) Preferred shareholders (C) both (A) and (B) (D) Neither (A) nor (B) Answer: (A) Shareholders Question 27. Redemptiable Preferred Shares may be redeemed on (A) the proceeds from the sale of equity interests (B) the proceeds from a new issue of shares (C) The issue premium (D) the proceeds from the issuance of debt securities Answer: (B) The proceeds from a new issue of shares 17. A company wants to return its 2,000 preferred shares of 100 rupees each at a price of 100 rupees each. The company has a general reserve balance of Rs.50,000 and a profit and loss A/c Rs.40,000. The company wants to issue shares of 10 rupees with a premium of 10%. How many shares should be issued? Question 17 The balance of the capital repayment reserve is -…………….
(A) Issue of fully paid-up free shares (B) Redemption of preferred shares (C) Bond buyback (D) All of the above: (A) Issue of fully paid-up free shares Question 38. For what or more of the following reasons could a balance of the equity premium be applied? a) Issuance of free shares. (b) For distribution to shareholders in the form of dividends. (c) write off the value of assets, in particular when they are impaired. d) Impairment of costs and commissions related to the issuance of the same shares Answer: b) For distribution to shareholders in the form of a dividend. Question 14 Where the preferred shares are repurchased out of profits, an amount equal to the par value of the shares so repurchased shall be paid to ………. to be transferred. (a) Capital reserve A/c (b) Repayment of capital reserve A/c (c) Capital gain A/c (D) Repayment reserve A/c Answer: (b) Capital repayment reserve A/c Question 45. Preferred shares worth ₹ 2,00,000 will be redeemed at a premium of 5% per issue of shares in the amount of ₹ 1,00,000 with a premium of 10%.
The amount to be allocated to the capital reserve =? (A) ₹ 1 05 000 (B) ₹ 1 00 000 (C) ₹ 2 00 000 (D) ₹ 1 11 000 Answer: (B) ₹ 1 00 000 Note: Since P&L A/c was used for the redemption of preferred shares, ₹ 1,00,000 will be transferred to CRR. Share allocation refers to the process by which a person`s name is entered in the membership register. True or false? Question 60 The board of directors of a company decided to issue a minimum number of shares of ₹10 each at a discount of 20% to buy back 4,500 preferred shares of ₹ 100 each. If the maximum divisible gain ₹ is 2,50,558. Calculate the number of shares to issue. How many shares are issued if they are issued in multiples of 50. (A) 24,931 & 24,950 (B) 24,931 & 24,900 (C) 24,932 & 24,950 (D) 24,932 & 24,930 Answer: (A) 24,931 & 24,950 Thus, 24,931 shares must be issued and a total of 24,950 shares must be issued in multiples of 50. Note: – Shares cannot be issued at a discount MCQ is designed to test students` computer skills.
The amount to be transferred to the capital redemption reserve is the notional amount of Prefshares shares to be repaid – value of issued shares = (1000 x 100) – (5000 x 10) = 100000 – 50000 = 50000 (issue premium funds received when EQ is issued, shares cannot be used for the redemption of Pref shares. The repurchase premium for Pref shares must be paid by P&L a/c or Securities Prem a/c). Therefore, option (b) is correct. Question 36 Which of the following statements is false? (A) In the event of the liquidation of a company, the preferred shares are entitled to a priority return on capital. (B) Preferred shares have preferential dividend rights. (C) Normally, preferred shares do not have voting rights at meetings of shareholders. (D) Preferred shares are always cumulative, even if the name does not confirm the position. Answer: (A) In the event of the liquidation of a corporation, the preferred shares are entitled to a priority redemption. Question 21 Under the Companies Act 2013, companies cannot pay the balance of the premium on securities for – (A) premium on the redemption of debt securities (B) the issuance of free shares (C) the write-off of commissions for the issuance of shares or debt securities (D) the loss of the issuance of debt securities Answer: (D) loss of debt issuance Question 46. A Ltd.`s balance sheet shows 20,000 preferred shares at 9% of ₹10 each.
The Company repaid preferred shares at a premium of ₹2 per share. For repayment, it made investments worth ₹1,60,000 (book value of ₹2,00,000). At the time of redemption, the income statement balance was ₹1,60,000. Issued at a premium of ₹40 per share, this number of shares of ₹100 each for redemption purposes to ensure that once the requirements of the Companies Act 2013 are met, the income statement balance would be ₹25,000. No. shares to be issued and the balance is transferred to the capital redemption account (A) 1,200 shares & ₹80,000 (B) 800 shares & ₹1,20,000 (C) 1,450 shares & ₹55,000 (D) 1,050 shares & ₹95,000 Answer: (C) 1,450 shares & 55,000 arrows were shown so that students understand how it works. There are restrictions on the issuance and redemption of redeemable shares. Which of the following options is NOT an actual limitation? Question 18 Under the Companies Act, 2013, preferred shares issued by companies involved in infrastructure projects may issue preferred shares issued under ……….. (A) 20 years (B) 40 years (C) 30 years (D) 10 years Answer: (C) 30 years 7. XYZ Co. Ltd. must return 1,000 preferred shares at Rs 100 each at a premium of 10%.
It issues 5,000 shares of 10 rupees each at a 10% premium. The amount transferred from the general reserve to the capital repayment reserve will be. Question 47. A Ltd. had fully paid up 3,000 preferred shares redeemable at 12% of ₹ 100 each. The Company issued 25,000 shares of ₹10 at par value and 1,000 notes at 14% of ₹100 each. The amount transferred to Capital Redemption A/c is ………….. (A) Nile (B) ₹ 50,000 (C) ₹ 2,00,000 (D) ₹ 3,00,000 Answer: (B) ₹ 50,000 Note: Since P&L A/c was used to redeem preferred shares, here is the amount that will be transferred to CRR. Question 55 Details of Y Ltd. : 9% Preferred shares — 1 00 00 000 Appeal arrears — 2 00 000 (on the preferred shares mentioned above) General reserve — 60 000 000 Premium on securities — 18 00 000 Development rebate reserve — 40 000 000 It should be noted that the appeal arrears are due to the definitive redemption of 10,000 shares held by 4 members, whose origin is approximately unknown.
₹ 10.00.000 of the development discount reserve can be distributed free of charge in the form of a dividend. The balance of the General Reserve and Securities Premium must be used for redemption purposes and any deficit must be offset by issuing shares of 10 each with a premium of 25%. The redemption of the preferred shares has been duly completed. No. Number of shares to be issued = ? (A) 5,00,000 shares (B) 4,00,000 shares (C) 3,00,000 shares (D) 2,00,000 shares Answer: (D) 2,00,000 shares Only fully paid preferred shares may be redeemed. Preferred shares to be cancelled = 1,00,000 – 10,000 = 90,000 shares. Nominal value of preferred shares to be repurchased = 90,00,000. Question 32. Which of the following claims is FALSE? (A) Redemptive Preferred Shares may be issued if permitted by the Articles of Association.
(B) The premium may be issued from the premium on securities, which is received only in cash. (C) The premium payable on the redemption of preferred shares may be paid by the premium on securities of the Company. (D) Repayable Preferred Shares may only be redeemed out of the Company`s profits. Answer: (D) Redempt preferred shares may only be redeemed out of the Company`s profits. The amount to be transferred to the capital repayment reserve is the notional amount of the prefactions to be repaid – value of the issued shares = 50000 – 30000 = 20000. Share buyback premium must be provided by P&L a/c or Securities Prem a/c. (Share premium funds received at the time of share issuance cannot be used for the redemption of Pref shares). Therefore, option (a) is correct. JME plc commences operations and issues one million shares with a par value of £3 each.
The company allows its grantees to pay £1.25 for the allowance and the rest at a later date. All the Allottes have opted for her and all the shares will be sold. What is JME plc`s paid-up share capital? Thus, the Corporation may issue debt securities, which may not, however, be used for the redemption of preferred shares.