Company Accounts and Analysis of Financial Statements Question with Answers
Categories: Freshers Intermediate class NCERT Accountancy
Company Accounts and Analysis of Financial Statements Question with Answers
Q1: What is public company?
Answer: A public company is defined as a company that offers a part of its ownership in the form of shares, debentures, bonds, securities to the general public through stock market. There must be at least seven members to form a public company. As per section 3 (1) (iv) of Companies Act 1956, public company means a company which:
- is not a private company,
- has a minimum paid-up capital of Rs 5,00,000 or such higher paid-up capital, as may be prescribed,
- is a private company, being a subsidiary of a company, which is not a private company? A public company should not be mistakenly understood as a publicly-owned company, as the latter is exclusively owned and controlled by the government. A public company issues its share to general public without any restriction on a maximum number of persons. A public company can be segmented into two types:
- Listed Company- A Company whose shares are listed and traded in the stock exchange like, Tata Motors, Reliance, etc.
- Unlisted Company- A Company whose shares are not listed in the stock exchange and thereby these shares cannot be traded in the stock exchange.
Q2: What is meant by the word 'Company'? Describe its characteristics.
Answer: Section 3 (1) (i) of the Company Act of 1956 defines an organization as a company that is formed and registered under the Act or any existing company that is formed and registered under any earlier company laws. In general, a company is an artificial person, created by law that has a separate legal entity, perpetual succession, common seal and has limited liability. It is a voluntary association of person who together contributes in the capital of the company to do business. Generally, the capital of a company is divided into small parts known as shares, the ownership of which is transferable subject to certain terms and conditions. There are two types of company, public company and private company. Characteristics of Company
- Association of Person: A company is formed voluntarily by a group of persons to perform a common business. Minimum number of person should be two for formation of a private company and seven for a public company.
- Artificial Person: Company is an artificial and juristic person that is created by law.
- Separate Legal Entity: A company has a separate legal entity from its members (shareholders) and Directors. It can open a bank account, sign a contract and can own a property in its own name.
- Limited Liability: The liability of the members of a company is limited up to the nominal value or the face value of the shares. Unlike a partnership firm, on insolvency of a company, the members and the shareholders are not liable to pay the amount due to the creditors of the company. In fact, the members and the shareholders are only liable to pay the unpaid amount of the shares held by them. For example, if the value of share is Rs 10 and Rs 6 is paid up, then the member is liable to pay only Rs 4.
- Perpetual Existence: The existence of company is not affected by the death, retirement, and insolvency of its members. That is, the life of a company remains unaffected by the life and the tenure of its members in the company. The life of a company is infinite until it is properly wound up as per the Company Act.
- Common Seal: The Company is an artificial person and has no physical existence; hence it cannot put its signature. Thus, the Common Seal acts as an official signature of a company that validates the official documents.
- Transferability of Shares: The shares of public limited company is easily and freely transferable without any consent from other members. But the share of ownership of a private limited company is not transferable without the consent of the other members.
Q3: What is private limited company?
Answer: Private limited company is a company that is limited by shares or by guarantee by its members.
A private limited company is defined as a company that has a minimum paid up share capital of Rs
1,00,000. As defined by the Section 3 (1) (iii) of Companies Act 1956, private limited company is defined by the following characteristics:
a) It restricts the right to transfer its shares.
b) There must be atleast two and a maximum of 50 members (excluding current and former employees) to form a private company.
c) It cannot invite application from the general public to subscribe its shares, or debentures.
d) It cannot invite or accept deposits from persons other than its members, Directors and their relatives. Unlike public company, a private company cannot issue its shares or debentures to general public at large as shares of these companies are not traded in the stock exchange, for example, CocaCola India Private limited, etc.
Q4: Define Government Company?
Answer: As per the Section 617 of Company Act of 1956, a Government Company means any company in which not less than 51% of the paid up share capital is held by the Central Government, or by any State Government or Governments, or partly the Central Government and partly by one or more State Governments and includes a company which is a subsidiary of a Government Company as thus defined.
Q5: What do you mean by the term 'share'? Discuss the type of shares, which can be issued under the Companies Act, 1956 as amended to date.
Answer: The total capital of a company is divided into equal units of small denomination termed as shares. The ownership of these shares is easily transferable, from one person to other, subject to certain conditions. The person who is contributing in the capital in the form of shares is known as a shareholder. The ownership of a shareholder is limited to the value of the shares held by him/her.
Q6: What do you mean by a listed company?
Answer: Those public companies whose shares are listed and can be traded in a recognized stock exchange for public trading like, Tata Motors, Reliance, etc are called Listed Company. These companies are also called Quota Companies. The listing of securities (shares) helps the investor to determine the increase/decrease in value of their investment in a concerned listed company. This provides ample indication to the potential investors about the goodwill of the company and facilitates them to take various investment decisions and also to assess the viability of their investment in a company
Q7: Discuss the process for the allotment of shares of a company in case of over subscription.
Answer: When the total number of applications received for shares exceeds the number of shares offered by the company to the public, the situation of oversubscription arises. A company can opt for any of the three alternatives to allot shares in case of an oversubscription of shares.
Q8: What are the uses of securities premium?
Answer: As per the Section 78 of the Companies Act of 1956, the amount of securities premium can be used by the company for the following activities:
- For paying up un issued shares of the company to be issued to members (shareholders) of the company as fully paid bonus share,
- For writing off the preliminary expenses of the company,
- For writing off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company,
- For paying up the premium that is to be payable on redemption of preference shares or debentures of the company.
- Further, as per the Section 77A, the securities premium amount can also be utilised by the company to Buy-back its own shares.