1. As per Section 52 of the Companies Act, 2013, the "Securities Premium Account" CANNOT be utilized for:
Distribution of dividend to shareholders.
Providing for premium payable on redemption of preference shares.
Writing off preliminary expenses.
Issuing fully paid bonus shares.
Explanation:
Securities Premium is a capital receipt and is restricted for specific uses like bonus shares or writing off expenses. It cannot be treated as free reserves for distributing cash dividends.
2. When shares are forfeited, the Share Capital Account is debited with:
Called-up Value of shares.
Paid-up Value of shares.
Face Value of shares.
Market Value of shares.
Explanation:
The liability of the shareholder is limited to the called-up amount. When forfeiting, we reverse the capital created so far, which is the Called-up Value (not necessarily the full Face Value if final call hasn't been made).
3. A company can buy back its own shares using funds from:
Working Capital Loans.
Proceeds of an issue of the same kind of shares.
Borrowings from banks.
Free Reserves, Securities Premium, or Proceeds of a fresh issue of shares (other than the same kind).
Explanation:
Section 68 of the Companies Act prohibits buyback using proceeds of an earlier issue of the *same kind* of shares. It allows using Free Reserves or Securities Premium.
4. Interest on "Calls in Arrears" can be charged by a company at a maximum rate of:
10% p.a.
12% p.a.
5% p.a.
6% p.a.
Explanation:
As per Table F of the Companies Act, 2013, the maximum interest rate chargeable on Calls in Arrears is 10% p.a. (For Calls in Advance, it is 12% p.a.).
5. According to the Companies Act, 2013, a company can issue shares at a discount ONLY in case of:
Private Placement.
Rights Issue.
IPO.
Sweat Equity Shares.
Explanation:
Section 53 prohibits the issue of shares at a discount, with the sole exception of "Sweat Equity Shares" issued to employees/directors for know-how or IP rights (Section 54).
6. When share applications exceed the number of shares offered, and shares are allotted proportionately to applicants, it is called:
Discount Allotment
Preferential Allotment
Premium Allotment
Pro-rata Allotment
Explanation:
Pro-rata allotment involves allotting shares in a ratio (e.g., 2 shares for every 3 applied) when there is oversubscription, ensuring every applicant gets something.
7. When forfeited shares are reissued, the discount on reissue cannot exceed:
The called-up value.
The amount previously received (forfeited) on those shares.
The face value.
10% of face value.
Explanation:
The loss on reissue (discount) cannot exceed the amount already collected (gain on forfeiture) for those specific shares. This ensures capital is kept intact.
8. Which type of Preference Shares carries the right to receive arrears of dividend from future profits if not paid in the current year?
Participating Preference Shares
Redeemable Preference Shares
Convertible Preference Shares
Cumulative Preference Shares
Explanation:
In Cumulative Preference Shares, unpaid dividends accumulate and must be paid before any dividend is paid to equity shareholders.
9. "Authorized Capital" of a company refers to:
Reserve capital.
Capital actually paid by shareholders.
The maximum amount of share capital that the company is authorized to issue by its Memorandum.
Capital offered to the public.
Explanation:
Authorized (Registered) Capital is the ceiling limit mentioned in the MOA. The company cannot issue shares beyond this without amending the MOA.
10. Which of the following reserves CANNOT be used for the issue of fully paid Bonus Shares?
Capital Redemption Reserve.
Revaluation Reserve.
Securities Premium Account.
General Reserve.
Explanation:
Bonus shares must be issued out of free reserves, securities premium, or capital redemption reserve. Revaluation Reserve is created by revaluing assets (unrealized gain) and cannot be used for issuing bonus shares as per the Companies Act.
11. As per SEBI guidelines, if a company does not receive a minimum subscription of ___ of the issue size, it must refund the application money.
Explanation:
The Minimum Subscription clause ensures that the company raises enough funds to carry out its project. If 90% of the issue is not subscribed, the entire amount collected must be refunded.
12. Companies are required to create a "Debenture Redemption Reserve" (DRR) out of profits available for dividend. What is the required percentage for NBFCs registered with RBI?
10% of outstanding debentures.
No DRR is required.
50% of outstanding debentures.
25% of outstanding debentures.
Explanation:
As per recent MCA amendments, Banking Companies, All India Financial Institutions (AIFIs), and NBFCs registered with RBI are EXEMPT from creating DRR for privately placed debentures. For other listed companies, it is also nil. DRR is mainly for unlisted non-NBFC companies (10%).
13. Underwriting commission payable on the issue of shares cannot exceed:
5% of issue price.
2.5% of issue price.
2% of issue price.
10% of issue price.
Explanation:
As per the Companies Act, 2013, the maximum underwriting commission on shares is 5% of the issue price (or the rate authorized by Articles, whichever is less). For Debentures, it is 2.5%.
14. Sweat Equity Shares issued to directors or employees are subject to a lock-in period of:
1 Year
3 Years
5 Years
No lock-in
Explanation:
Shares issued as Sweat Equity are non-transferable for a period of 3 years from the date of allotment.
15. Under an Employee Stock Option Plan (ESOP), the "Vesting Period" is the period:
Between the grant of the option and the date the employee becomes entitled to exercise the option.
During which shares cannot be sold.
Within which the employee must buy the shares.
After the employee leaves the company.
Explanation:
Vesting is the process of earning the right to the shares. The employee must serve the company during this period to get the right to buy shares.
16. Companies are required to prepare their Balance Sheet in the format prescribed in:
Table A of Companies Act.
Schedule VI of Banking Regulation Act.
Schedule I of Companies Act.
Schedule III of Companies Act, 2013.
Explanation:
Schedule III provides the general instructions and format (Part I for BS, Part II for P&L) for preparation of financial statements of companies.
17. Debenture Interest is paid:
After paying equity dividend.
Only if there is profit.
Even if there is a loss (Charge against profit).
Before paying preference dividend.
Explanation:
Interest on debentures is a debt obligation. It is a "Charge against profit", meaning it must be paid regardless of whether the company makes a profit or loss.
18. A company can issue Sweat Equity Shares up to a maximum of _____ of its paid-up equity capital in a year.
Explanation:
Under Section 54, the limit is 15% of the existing paid-up equity share capital in a year or shares of the issue value of ?5 crores, whichever is higher.
19. "Rights Shares" are shares offered to:
Existing employees only.
General public at a discount.
Directors of the company.
Existing shareholders in proportion to their holding.
Explanation:
Section 62 of the Companies Act requires new shares to be offered first to existing shareholders to protect them from dilution of ownership.
20. Dividend can be declared only out of:
Securities Premium.
Revaluation Reserve.
Current year profits or accumulated free reserves.
Capital Redemption Reserve.
Explanation:
Dividends represent a distribution of earnings. They cannot be paid out of capital reserves (like Securities Premium or CRR) or unrealized gains (Revaluation Reserve).
21. Which of the following is a valid use of Securities Premium under Sec 52?
Writing off bad debts.
Paying monthly salaries.
Buying back own shares.
Paying dividends.
Explanation:
Securities Premium can be used for: Bonus shares, Writing off preliminary expenses, Writing off issue expenses/commission, Providing for premium on redemption, and Buyback of shares.
22. Securities Premium Account is shown in the Balance Sheet under:
Share Capital
Current Liabilities
Investments
Reserves and Surplus
Explanation:
It is a capital reserve and is grouped under "Reserves and Surplus" in the Equity and Liabilities part.
23. Preference shares can be redeemed ONLY out of:
Proceeds of a fresh issue of debentures.
Sale of fixed assets.
Security Premium Account only.
Profits available for dividend or proceeds of a fresh issue of shares.
Explanation:
Section 55 of the Companies Act states that redemption must happen either out of distributable profits (creating CRR) or out of the proceeds of a fresh issue of shares made for the purpose of redemption.
24. Can the Securities Premium Account be used to write off the "Discount on Issue of Debentures"?
Yes.
Yes, but only with court permission.
No, it can only be used for bonus shares.
No, never.
Explanation:
Section 52 of Companies Act, 2013 specifically lists "writing off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures" as a permitted use of Securities Premium.
25. The maximum limit for buyback of shares in any financial year is _____ of the total paid-up capital and free reserves of the company.
Explanation:
Section 68 restricts buyback to 25% of the aggregate of paid-up capital and free reserves.
26. Section 53 of the Companies Act, 2013 declares the issue of shares at a discount as:
Valid
Void
Voidable
Permitted with RBI approval
Explanation:
Any issue of shares at a discount (except sweat equity) is void, and the company/officers are liable for penalties.
27. Interest on Calls in Advance is payable by the company at a rate not exceeding:
Explanation:
As per Table F of Companies Act 2013, interest on Calls in Advance is max 12% p.a., while interest on Calls in Arrears is max 10% p.a.