Redemption of Preference Shares Multiple Choice Questions
1. According to sec. 100 of the companies act, a company is not allowed to return to its shareholders the share money without the permission of the court. True
2. Permission of court is necessary if refund is made to preference share holders. False
3. According to sec. 80 of the companies act, partly paid shares can be redeemed. False
4. Redeemable Preference shares can be redeemed out of __________
The sale proceeds of Investments
The proceeds of a fresh issue of shares
The proceeds of issue of debentures
5. Partly paid preference shares cannot be redeemed. True
6. Which of the following statements is NOT TRUE with regard to redemption of Preference shares
Partly paid shares cannot be redeemed
The redemption of Preference shares shall be taken as reduction of company’s authorized share capital
When shares are issued for redemption in future, it will not be treated as increase in capital
Preference share can be redeemed either out of the profit by capitalization or amount of fresh issue of shares.
7. When Redeemable Preference shares are due for redemption, the entry passed is
Debit redeemable Preference Share capital a/c; Credit cash a/c
Debit Redeemable Preference share capital a/c; credit Preference share holders a/c
Debit preference share holders a/c; credit cash a/c
Debit preference share holders a/c; credit capital reduction a/c
Debit redeemable preference share capital a/c; credit capital reduction a/c
8. Preference shares can be redeemed out of the proceeds of fresh issue of debentures. False
9. Which of the following can be utilized for the redemption of preference shares of a company out of profit:
Shares forfeited account
Development rebate reserve account
Capital redemption reserve account
Securities premium account
Dividend equalisation reserve
10. Which of the following cannot be utilized for the redemption of preference shares of a company
proceeds of fresh issue of shares
Profit and Loss Account
Dividend equalization reserve
Securities premium on fresh issue of shares
11. If preference shares are redeemed out of distributable profits and amount equal to the face value of shares redeemed is transferred to Capital Redemption Reserve account(CRR).
12. CRR can be used for issuing fully paid bonus shares to the existing shareholders. True
13. CRR can be reducedd in accordance with the sanction of the court relating to reduction of share capital. True
14. Redemption of share capital can be regarded as reduction of the authorised share capital of the company. False
15. Which of the following statements is false
Redeemable preference share can be issued, if authorized by the articles of association
The bonus issue can be made out of securities premium collected only in cash.
Redeemable preference share can be redeemed only when they are fully paid.
Premium payable on redemption of preference share can be provided of company’s securities premium.
Redeemable preference shares can be redeemed only out of profits of the company.
16. Which of the following statements is false?
A company can redeem its preference shares
Preference shareholders are creditors of a company
The part of the authorized capital which can be called up only in the event of liquidation of a company is called reserve capital
Capital redemption reserve can be utilized for issuing fully paid bonus shares
17. Which of the following statements is false?
Capital redemption reserve cannot be used for writing off miscellaneous expenses and losses
Capital profit realized in cash can be used for payment of dividend
Reserves created by revaluation of fixed assets are not permitted to be capitalized
Dividend is payable on the calls paid in advance by shareholders.
18. A company cannot issue redeemable preference shares for a period exceeding _____________.
19. Which of the following cannot be used for the purpose of creation of capital redemption reserve account?
Profit and loss account (credit balance)
General reserve account
Dividend equalization reserve account
Unclaimed dividends account
20. Unclaimed dividends account is a liability of the company. True
21. The Capital Redemption reserve is created for the following reasons:
To Maintain the capital intact
To safeguard the interest company’s creditors
Both of the above
None of the above
22. Which of the following accounts can be transferred to capital redemption reserve account?
General reserve account
Forfeited shares account
Profit prior to incorporation
Securities premium account
23. According to sec. 100(1)(c) of the companies act, a company can pay back share capital which is in excess of need if:
Authorised by articles
Confirmation of the court
Special resolutio is passed to that effect
All of the above
Practical Problems (Try Yourself)
24. The company has 2,500, 11% redeemable preference shares of Rs.100 each. These shares were due to be redeemed at a premium of 10%. The company has the following profits:
Profit prior to incorporate = Rs.40,000; Capital reserve = Rs.40,000; Securities premium = Rs.20,000; General Reserve = Rs.85,000; Profit and loss a/c = Rs.80,000
As the divisible profits income inadequate, the company issued the number amount of equity share of Rs.10 each at a discount of 10%. What were the numbers of shares issued?
(a) 10,000 Equity Shares ( b) 9,000 Equity Shares (c ) 8,000 Equity Shares (d) 7,500 Equity Shares (e) 7,000 Equity Shares
MCQ of Redemption of Preference Shares
1 Kumar Nirmal Prasad; contact no.: 9577097967; email: email@example.com
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