Accounting Treatment of Issue Shares

1 Mark Questions

1. What is the maximum amount of discount at which forfeited shares can be re- issued? (Delhi 2014)

Ans. When forfeited shares are re-issued at a discount, the discount cannot exceed the amount forfeited on re-issued shares.

1. Give any one purpose for which the amount received as 'securities' premium reserve' may be utilised. (Compartment 2014)

Ans. Securities premium can be utilised in writing-off preliminary expenses of the company.

3.A Ltd forfeited 100 equity shares of Rs 10 each issued at premium of 20% for the non-payment of final call of Rs 5 including premium. State the maximum amount of discount at which these shares can be re-issued. (All India 2014) Ans. Maximum amount of discount that can be allowed at the time of re-issue is the amount forfeited on re-issued shares, i.e. Rs 7.

4. What is meant by private placement of shares? (Compartment 2014)

Ans. Private placement of shares means selling of shares to a relatively small number of select investors. Private placement is the opposite of a public issue, in which securities are made available for sale in the open market.

5. Give the meaning of forfeiture of shares. (All India 2014(c), 2010)

Ans. Forfeiture of shares means cancellation of shares and seizure of the amount received from the defaulting shareholders, whose shares have been forfeited. Upon forfeiture, the name of original shareholder must be removed from the register of members. Forfeiture results in reduction of share capital.

6. What is meant by 'calls-in-arrears'? (All India 2013)

Ans. If shareholders make default in paying the money due on allotment or any call, the money not so paid is called calls-in-arrears.

1. What rate of interest the company pays on calls-in-advance, if it has not prepared its own Articles of Association?(Delhi 2013)

Ans. As per Table F, of the Companies Act, interest on calls-in-advance is payable @ 12% per annum by the company.

8. What is meant by securities premium reserve? (Delhi 2013)

Ans. A company can issue its shares at more than its face value. Excess of issue price of shares over its face value is termed as securities premium.

9. What is meant by calls-in-advance? (All India 2012; Delhi 2008)

Ans. Calls-in-advance means the amount paid by shareholders in excess of the amount due from them. The company may receive calls-in-advance if the articles permit. It is shown as a current liability in the balance sheet.

10. State the steps other than rejecting applications that a company can take in case of over subscription. (Delhi 2011c)

or Give any two alternatives available to a company for the allotment of shares in case of over subscription. (Delhi 2009 c)

Ans. The step's other than rejecting applications that a company can take in case of over subscription are:

1. All applicants are allotted shares on pro-rata basis.
2. Some applicants are allotted shares in full and some are allotted shares on pro-rata basis.

11. Can securities premium be used as working capital? Give reason in support of your answer.(All India 2011; HOTS)

Ans. Securities premium cannot be used as working capital.

According to Section 52 (2) of the Companies Act, 2013, the securities premium can be applied only for the following purposes:

1. Issuing fully paid bonus shares to the members.
2. Writing-off the preliminary expenses of the company.
3. Writing-off the expenses on issue of shares, commission paid on any issue of shares or debentures of the company and discount allowed on any issues of shares and debentures.
4. Providing for the premium payable on the redemption of redeemable preference shares or debentures of the company.

12. What is meant by pro-rata allotment of shares? (All India 2010)

Ans. In the case of over subscription, it is not possible to allot shares to all applicants. Applicants may be allotted less number of shares than they have applied for. This type of allotment of shares is known as pro-rata allotment of shares, e.g. if company allots 50,000 shares to applicants of 75,000 shares, it is pro-rata allotment in proportion of 2: 3.

13. Give the meaning of over subscription. (All India 2008)

Ans. Over subscription is a situation in which applications received are for more shares than the number of shares offered to the public for subscription through prospectus by a company.