Company Accounts and Analysis of Financial Statements Question with Answers part 2
Categories: Freshers Intermediate class NCERT Accountancy
Company Accounts and Analysis of Financial Statements Question with Answers part 2
Q1: What is a 'Preference Share'? Describe the different types of preference shares.
Answer: Preference Shares: Section 85 of the Company Act,1956 defines Preference Shares to be featured by the following rights:
- Preference Shares entitle its holder the right to receive dividend at a fixed rate or fixed amount.
- Preference Shares entitle its holder the preferential right to receive repayment of capital invested by them before their equity counterparts at the time of winding up of the company.
Q2: What is buy-back of shares?
Answer: Buy-back of shares means repurchasing of its own shares by a company from the market for reducing the number of shares in the open market. As per the Section 77A, 77AA and 77B of the Company Act of 1956, a company can Buy-back its own shares and debentures on the account of following reasons:
- To improve EPS (Earnings Per Share)
- To return surplus cash to the shareholders that is not required by the business
- To support value of its shares
- To facilitate capital restructuring of the company.
- To prevent take-over bid.
Q3: Describe the provision of law relating to 'Calls-in-Arrears' and 'Calls-in-Advance'.
Answer: Calls-in-Arrears: When a shareholder fails to pay the amount due on allotment or any subsequent calls, then it is termed as Calls-in-Arrears. The Company is authorized by its Article of Association to charge interest at a specified rate on the amount of Call in Arrears from the due date till the date of payment. If the Article of Association is silent in this regard, then Table A shall be applicable that is interest at 5% p.a. is charged from the shareholders. As per the Revised Schedule VI of the Companies Act, Calls-in-Arrears are deducted from the Called-up Share Capital in the Notes to Accounts (that is prepared outside the Balance Sheet) under the head 'Share Capital'. The final amount of Share Capital is shown on the Equity and Liabilities side of the Company's Balance Sheet. The company can also forfeit the shares on account of nonpayment of the calls money after giving proper notice to the shareholders.
Q4: Write a brief note on 'Minimum Subscription'.
Answer: When shares are issued to the general public, the minimum amount that must be subscribed by the public so that the company can allot shares to the applicants is termed as Minimum Subscription. As per the Company Act of 1956, the Minimum Subscription of share cannot be less than 90% of the issued amount. If the Minimum Subscription is not received, the company cannot allot shares to its applicants and it shall immediately refund the entire application amount received to the public.
Q6: State clearly the conditions under which a company can issue shares at a discount.
Answer: As per the Section 79 of the Company Act of 1956, following are the conditions under which a company can issue shares at a discount.
- A company can issue shares at discount provided it has previously issued such type of shares.
- The issue of shares at a discount is authorized by a resolution passed by the company in the
- General Meeting and sanction obtained from the Company Law Tribunal.
- The resolution specifies that the maximum rate of discount is 10% of the face value of the shares,
- unless higher percentage of discount allowed by the Company Law Tribunal.
- A company can issue shares at discount at least after one year from the date of commencing business.
- If a company wants to issue shares at discount, then it must issue them within two months of obtaining sanction from the Company Law Tribunal.
- Every prospectus related to the issue of the shares should explicitly and clearly contain particulars of the discount allowed on the issue of shares.