MOST IMPORTANT AND BASIC QUESTIONS OF "ACCOUNTING FOR SHARE CAPITAL"— CLASS XII

Q.1.  What are preliminary expenses?

Ans. Preliminary expenses are those expenses which are incurred for incorporation of a company.

Q.2. What are two types of shares which a company can issue?

Ans. (i) Preference Shares, and

      (ii) Equity Shares

Q.3. Give the meaning of 'Share Capital'.

Ans. The share capital is the amount that a company raises by issue of shares.

Q.4. What is Authorised (Registered) Capital?

Ans. Authorised capital means such a capital as is authorised by the memorandum of a company to be the maximum share capital of the company.

Q.5. Explain the term 'Subscribed and Fully Paid–up Share Capital'.

Ans. It is the amount of share capital issued by a company that is subscribed on which the company has called and also received entire nominal (face) value of the share.

Q.6. Explain the term 'Subscribed but not Fully Paid–up Share Capital'.

Ans. It is the amount of share capital issued by a company that is subscribed but the company has not received entire nominal value of the share.

Q.7. What is Reserve Capital?

Ans. Reserve Capital is that part of uncalled capital which the company resolves to call on winding up of the company.

Q.8. What is meant by Called–up Capital?

Ans. Called–up capital means such part of the capital which has been called by the company for payment.

Q.9. What is meant by Buy–Back of Shares? 

Ans. It means the act of purchasing its own shares by a company.

Q.10. What is meant by Rights Issue of Shares?

Ans. Rights Issue is an issue of shares in which the existing shareholders have a right to subscribe for the new shares.

Q.11. What is meant by Forfeiture of Shares?

Ans. If a shareholder fails to pay any call made on him, which is due on shares, the company may cancel his shares. This cancellation of shares for non–payment of amout due on shares is known as Forfeiture Of Shares.

Q.12. What is the maximum amount of discount which may be allowed on reissue of shares?

Ans. Discount allowed on reissue of forfeited shares should not exceed the amount forfeited, i.e., amount credited to 'Forfeited Shares A/c' at the time of forfeiture.

Q.13. What is meant by Capital Reserve?

Ans. It is a reserve created out of profits of the capital nature which are not available for distribution as dividend.

Q.14. What is meant by 'Private Placement of Shares'? 

Ans. Private Placement of Shares implies issue and allotment of shares to a select group of persons privately and not to public in general through public issue. 

Q.15. What is Minimum Subscription?

Ans. Minimum Subscription means the amount which in the opinion of the Board of Directors of a company, must be received towards the subscription of the issued share capital.

SEBI has prescribed that a company must receive at least 90% subscription of the Issued Share Capital before making any allotment of shares or debentures to the public.

Q.16. What is meant by Public Issue of Shares?

Ans. It means an invitation by a company to public to subscribe the shares offered through a prospectus. 

Q.17. Give the meaning of Calls–in–Arrears.

Ans. Calls–in–Arrears is that part of capital which has been called–up but has not yet been paid by the shareholders.

Q.18. What is meant by Issue of Shares for consideration other than cash?

Ans. When the company purchases some assets or purchase a running business, instead of making the payment to the vendor in cash, it issues its shares. Such issue of shares is termed as Issue of Shares for consideration other than cash.

Q.19. What is meant by 'Securities Premium'?

Ans. The excess of issue price over the nominal (face) value of a Share/Debenture is 'Securities Premium'.

Q.20. What is meant by 'Pro rata Allotment of Shares'?

Ans. It means allotment of shares in a fixed proportion. Pro rata allotment takes place only when the public issue of shares is oversubscribed.

click here, to know more regarding Company and Shares