Chapter 1: Issue of Share for Cash
(20 Theory Questions & Answers)
What is a share?
A share is a unit of ownership in a company that represents a fraction of the company's capital.
What is meant by the issue of shares?
The process of offering shares to the public or private investors for raising capital.
What are the different types of shares?
Equity shares and Preference shares.
What is the difference between equity and preference shares?
Equity shares provide voting rights but no fixed dividend, whereas preference shares offer fixed dividends but limited voting rights.
What is the meaning of the authorized capital of a company?
The maximum amount of capital a company is legally allowed to raise.
What is issued capital?
The portion of authorized capital that a company has issued to shareholders.
What is subscribed capital?
The part of issued capital that investors have subscribed to.
What is called-up capital?
The portion of subscribed capital that the company has asked shareholders to pay.
What is paid-up capital?
The amount of called-up capital that shareholders have paid.
What is the difference between oversubscription and undersubscription?
Oversubscription occurs when applications exceed available shares, whereas undersubscription means applications are fewer than available shares.
What are the different methods of issuing shares?
Public issue, private placement, right issue, and bonus issue.
What is the meaning of par value?
The face value of a share as stated in the company's charter.
What is a premium issue of shares?
When shares are issued at a price higher than their face value.
What is the discount issue of shares?
When shares are issued at a price lower than their face value.
What are the stages of share issue?
Application, allotment, and call (first call, second call, final call).
What is an application money?
The initial amount paid by investors when applying for shares.
What is share allotment?
The process of distributing shares among applicants.
What is a share call?
The demand made by a company to shareholders to pay a portion of the called-up capital.
What is the journal entry for the receipt of application money?
Bank A/C Dr.
To Share Application A/C
What is the journal entry for transferring application money to share capital?
Share Application A/C Dr.
To Share Capital A/C
Chapter 2: Forfeiture and Reissue of Shares
(20 Theory Questions & Answers)
What is share forfeiture?
The cancellation of shares due to the non-payment of due amounts by shareholders.
What happens when shares are forfeited?
The shareholder loses ownership, and the company retains the previously paid amount.
What is the main reason for forfeiting shares?
Non-payment of call money by shareholders.
What is the impact of share forfeiture on the company's share capital?
The share capital is reduced by the forfeited shares' amount.
What is reissue of forfeited shares?
The process of selling forfeited shares to a new shareholder.
At what price can forfeited shares be reissued?
Forfeited shares can be reissued at par, premium, or discount.
What is the maximum discount allowed on the reissue of forfeited shares?
The discount cannot exceed the forfeited amount.
What is the journal entry for forfeiture of shares?
Share Capital A/C Dr.
To Share Forfeiture A/C
To Share Call A/C (Unpaid Call Money)
What is the journal entry for reissue of forfeited shares?
Bank A/C Dr.
Share Forfeiture A/C Dr.
To Share Capital A/C
What happens to the balance in the share forfeiture account after reissue?
The remaining balance is transferred to the capital reserve account.
What is a capital reserve?
A reserve created from forfeited shares' profits, which is not available for dividend distribution.
How does forfeiture of shares affect shareholders' rights?
The shareholder loses all ownership rights in the company.
What happens if a shareholder fails to pay the first call?
The company may send a notice and then forfeit the shares if payment is not made.
Can a company reissue forfeited shares at a higher price than the original issue price?
Yes, if the market allows it.
How does the reissue of forfeited shares affect a company's financial position?
It increases capital and improves cash inflow.
What is the difference between forfeiture and surrender of shares?
Forfeiture is a compulsory action by the company, while surrender is voluntary by the shareholder.
Can forfeited shares be reissued to the same person?
No, they must be issued to a new shareholder.
What is the purpose of forfeiting shares?
To maintain financial discipline and recover unpaid amounts.
What is the treatment of forfeited shares in a company's balance sheet?
It is shown under Share Capital until reissued.
How does forfeiture impact company reputation?
Frequent forfeiture may create a negative impression among investors.
Chapter 3: Accounting of Debentures
(20 Theory Questions & Answers)
What is a debenture?
A long-term loan instrument issued by a company to raise funds.
What is the difference between a debenture and a share?
A debenture is a loan (debt), while a share represents ownership.
What are the types of debentures?
Secured, unsecured, redeemable, irredeemable, convertible, and non-convertible debentures.
What is meant by secured debentures?
Debentures backed by company assets as collateral.
What is an unsecured debenture?
A debenture issued without collateral security.
What is meant by redemption of debentures?
Repaying the borrowed amount at maturity.
What are convertible debentures?
Debentures that can be converted into shares after a certain period.
What is a debenture trustee?
A financial institution that protects debenture holders' interests.
How are debentures issued?
At par, premium, or discount.
What is the journal entry for issuing debentures at par?
Bank A/C Dr.
To Debenture A/C
What is the journal entry for issuing debentures at a discount?
Bank A/C Dr.
Discount on Issue of Debenture A/C Dr.
To Debenture A/C
What is the interest payment on debentures?
A fixed periodic payment to debenture holders.
What is the journal entry for interest payment?
Debenture Interest A/C Dr.
To Bank A/C
What is a sinking fund?
A fund set aside for debenture redemption.
What is the difference between bond and debenture?
A bond is issued by governments or corporations, while a debenture is issued only by companies.
How is debenture shown in the balance sheet?
Under Non-Current Liabilities.
What is the purpose of issuing debentures?
To raise long-term funds without diluting ownership.
What is a cumulative debenture?
A debenture where unpaid interest accumulates.
What is a callable debenture?
A debenture that can be redeemed before maturity.
What is the impact of debenture on company finance?
It increases debt obligations but helps raise funds efficiently.
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