Redemption of Preference Shares – Corporate and Management Accounting MCQ

Students should practice Redemption of Preference Shares – Corporate and Management Accounting CS Executive MCQ Questions with Answers based on the latest syllabus.

Redemption of Preference Shares – Corporate and Management Accounting MCQ

Question 1.
Capital Redemption Reserve Account may be applied to issue
(A) Right shares
(B) Bonus debentures
(C) Bonus to employees of the company
(D) Bonus shares
Answer:
(D) Bonus shares

Question 2.
No company limited by shares, issue any preference shares which is redeemable after the expiry of a period of_____from the date of issue
(A) Ten years
(B) Five years
(C) Twenty years
(D) Twenty five years
Answer:
(C) Twenty years

Question 3.
The balance in capital redemption reserve is available for
(A) Issue of fully paid-up bonus shares
(B) Redemption of preference shares
(C) Redemption of debentures
(D) All of the above
Answer:
(A) Issue of fully paid-up bonus shares

Question 4.
As per the Companies Act, 2013, preference shares that are issued by a company engaged in an infrastructure project can issue preference shares that are redeemable after _____
(A) 20 years
(B) 40 years
(C) 30 years
(D) 10 years
Answer:
(C) 30 years

Question 5.
A preference share is one that enjoys a:
(A) Preferential right regarding payment of dividend
(B) Preferential right regarding allotment of shares
(C) Preferential right regarding payment of dividend and return of capital
(D) Preferential right regarding the return of capital
Answer:
(C) Preferential right regarding payment of dividend and return of capital

Question 6.
Unless otherwise stated, a preference share is always deemed to be
(A) Cumulative, participating and non-convertible
(B) Non-cumulative, non-participating, and non-convertible
(C) Cumulative, non-participating and non-convertible
(D) Non-cumulative, participating and non-convertible
Answer:
(C) Cumulative, non-participating and non-convertible

Question 7.
As per the Companies Act, 2013 the companies cannot use the balance of Securities Premium for
(A) Premium on redemption of debentures
(B) Issuing bonus shares
(C) Writing off commission on the issue of shares or debentures
(D) Loss of issue of debentures
Answer:
(D) Loss of issue of debentures

Question 8.
Which of the following can be utilized in the redemption of preference share capital account?
1. Profits available for dividend
2. Capital Reserve
3. Dividend Equalization Fund
4. Development Rebate Reserve
5. Proht Prior to Incorporation
Select the correct answer from the options given below
(A) 1,3 and 5 only
(B) 2 and 4 only
(C) 1 and 3 only
(D) 1, 2, 3, and 5 only
Answer:
(C) 1 and 3 only

Question 9.
Statement I:
The main purpose to create CRR is to keep the capital structure of the company variable.
Statement II:
Another purpose to create CRR is to protect the interest of creditors since CRR cannot be utilized for the payment of dividends.
Select the correct answer from the options given below
(A) Statement I is true but Statement II is false
(B) Both Statement I and Statement II are false
(C) Statement I is false but Statement II is true
(D) Both Statement I and Statement II are true
Answer:
(C) 1 and 3 only

Question 10.
To whom the bonus shares or rights shares can be issued?
(A) Equity shareholders
(B) Preference shareholders
(C) Both (A) and (B)
(D) Neither (A) nor (B)
Answer:
(A) Equity shareholders

Question 11.
Preference shares are entitled to a
(A) Variable rate of dividend.
(B) Fixed rate of dividend.
(C) Both (A) and (B)
(D) Neither (A) nor (B)
Answer:
(B) Fixed rate of dividend.

Question 12.
A preference shareholder can vote
(A) When his special rights as a preference shareholder are being varied
(B) On any resolution for the winding up of the company
(C) When their dividend has not been paid for a period of 2 years or more.
(D) All of the above
Answer:
(D) All of the above

Question 13.
Redeemable Preference shares can be redeemed out of _______
(A) The sale proceeds of Investments
(B) The proceeds of a fresh issue of shares
(C) Share premium
(D) The proceeds of the issue of debentures
Answer:
(B) The proceeds of a fresh issue of shares

Question 14.
Which of the following is the correct journal entry for the ‘Amount due to preference shares on redemption’?
Redemption of Preference Shares – Corporate and Management Accounting MCQ 1
Redemption of Preference Shares – Corporate and Management Accounting MCQ 2
Answer:
(C)

Question 15.
A company used a balance of ‘General Reserve’ and ‘P & L A/c’ for the redemption of preference share capital amount. Which of the following is the correct journal entry for this transaction?
Redemption of Preference Shares – Corporate and Management Accounting MCQ 3
Answer:
(C)

Question 16.
Which of the following statements is NOT TRUE with regard to the redemption of Preference shares?
(A) Partly paid shares cannot be redeemed.
(B) The redemption of preference shares shall be taken as a reduction of the company’s authorized share capital.
(C) When shares are issued for redemption in the future, it will not be treated as an increase in capital.
(D) Preference share can be redeemed either out of the profit by capitalization or amount of fresh issue of shares.
Answer:
(B) The redemption of preference shares shall be taken as a reduction of the company’s authorized share capital.

Question 17.
When Redeemable Preference shares are due for redemption, the entry will be
(A) Debit redeemable Preference Share capital A/c; Credit cash A/c
(B) Debit Redeemable Preference share capital A/c; credit Preference shareholders A/c
(C) Debit preference shareholders A/c; credit cash A/c
(D) Debit preference shareholders A/c; credit capital reduction A/c
Answer:
(B) Debit Redeemable Preference share capital A/c; credit Preference shareholders A/c

Question 18.
Which of the following statements is FALSE?
(A) Redeemable preference share can be issued if authorized by the articles of association.
(B) The bonus issue can be made out of securities premium collected only in cash.
(C) Premium payable on redemption of preference share can be provided of the company’s securities premium.
(D) Redeemable preference shares can be redeemed only out of the profits of the company.
Answer:
(D) Redeemable preference shares can be redeemed only out of the profits of the company.

Question 19.
Which of the following cannot be used for the purpose of creation of a capital redemption reserve account?
(A) Profit& Loss A / c(credit balance)
(B) General Reserve A/c
(C) Dividend Equalization Reserve A/c
(D) Unclaimed Dividends A/c
Answer:
(D) Unclaimed Dividends A/c

Question 20.
According to section 52 of the Companies Act, 2013, the amount in the Securities Premium A/c cannot be used for the purpose of:
(A) Issue of fully paid bonus shares
(B) Writing off losses of the company
(C) For purchase of own securities
(D) Writing off commission or discount on issue of shares
Answer:
(B) Writing off losses of the company

Question 21.
Which of the following statements is TRUE?
(A) Capital redemption reserve cannot be used for writing off miscellaneous expenses and losses.
(B) Capital profit realized in cash cannot be used for payment of dividends.
(C) Reserves created by revaluation of fixed assets are not permitted to be capitalized.
(D) Dividend is payable on the calls paid in advance by shareholders.
Answer:
(A) Capital redemption reserve cannot be used for writing off miscellaneous expenses and losses.

Question 22.
Which of the following statements is incorrect?
(A) In a company liquidation Preference shares are entitled to priority return of capital.
(B) Preference shares have a priority right to receive dividends.
(C) Normally Preference shares have no votes at meetings of shareholders.
(D) Preference shares are always cumulative, even if the name does not confirm the position.
Answer:
(A) In a company liquidation Preference shares are entitled to priority return of capital.

Question 23.
Which of the following statements is correct?
(A) Preference shares and debentures have priority right for a reward over ordinary shares.
(B) Debentures will not receive interest in a year when the company makes an operating loss.
(C) Preference shares will get dividends only when ordinary shares to receive them.
(D) Ordinary shares could be paid dividends even when a company has negative retained earnings.
Answer:
(A) Preference shares and debentures have priority right for a reward over ordinary shares.

Question 24.
For which one or more of the following reasons could a balance in the share premium be applied?
(a) To issue bonus shares.
(b) For distribution to shareholders as dividend.
(c) To write down the value of assets, particularly when they are impaired.
(d) To write off expenses of and commission on issuing the same shares
Select the correct answer from the options given below
(A) (c) & (d)
(B) (a)&(d)
(C) (b) & (c)
(D) (a) & (b)
Answer:
(B) (a)&(d)

Question 25.
For which one or more of the following reasons does company law attempt to protect the balance in the Securities Premium account by specifying the reasons for which alone it may be applied?
(a) It is part of the capital actually contributed by the shareholders.
(b) It should be protected from erosion as part of the creditor’s buffer.
(c) It is not realized in cash.
(d) It is immoral to allow a company to make a profit by trading on its own shares.
Select the correct answer from the options given below:
(A) (c) & (d)
(B) (a) & (d)
(C) (a) & (b)
(D) (b) & (c)
Answer:
(C) (a) & (b)

Question 26.
During the year a company used the balance it had in its securities premium account for all of the following purposes:
(a) Write off expenses after the formation of the company
(b Write off the cost of issuing bonus shares.
(c) Write off goodwill acquired when another business was bought as a going concern.
(cl) Write off expenses of issuing shares.
Which one is not correct?
(A) (a) & (c)
(B) (b) & (c)
(C) (a) & (d)
(D) (b) & (d)
Answer:
(A) (a) & (c)

Question 27.
N Ltd. had 9,000 8% preference shares of ₹ 100 each, fully paid up. The company decided to redeem these preference shares at par by the issue of a sufficient number of equity shares. How many equity shares are required to be issued if new equity shares are to be issued at ₹ 10 each?
(A) 90,000 equity shares
(B) 1,00,000 equity shares
(C) 75,000 equity shares
(D) 93,333 equity shares
Hint:
No. of shares to be issued = \(\frac{\text { Amount payable to preference shareholder }}{\text { Nominal value per share }}\)
\(\frac{9,00,000}{10}\) = 90,000
Answer:
(A) 90,000 equity shares

Question 28.
S Ltd. had 9,000 8% preference shares of ₹ 100 each, fully paid up. The company decided to redeem these preference shares at par by the issue of a sufficient number of equity shares. How much equity shares are required to be issued if new equity shares are to be issued at ₹ 12 for a premium including ₹ 2.
(A) 90,000 equity shares
(B) 1,00,000 equity shares
(C) 75,000 equity shares
(D) 93,333 equity shares
Hint:
No. of shares to be issued = \(\frac{9,00,000}{10}\) = 90,000
Answer:
(A) 90,000 equity shares

Question 29.
S Ltd. issued 2,000,10% Preference shares of ₹ 100 each at par, which are redeemable at a premium of 10%. For the purpose of redemption, the company issued 1,500 Equity Shares of ₹ 100 each at a premium of 20% per share. At the time of redemption of Preference Shares, the amount to be transferred by the company to the Capital Redemption Reserve Account =?
(A) ₹ 50,000
(B) ₹ 40,000
(C) ₹ 2,00,000
(D) ₹ 2,20,000
Hint:
Redemption of Preference Shares – Corporate and Management Accounting MCQ 4
Note: Where any preference shares are redeemed out of profits, a sum equal to the nominal amount of the shares so redeemed must be transferred out of the profits of the company which would otherwise be available for the dividend to a reserve fund called ‘Capital Redemption Reserve Account’.
Answer:
(A) ₹ 50,000

Question 30.
During the year 2005-2006, T Ltd. issued 20,000, 12% Preference shares of ₹ 10 each at a premium of 5%, which are redeemable after 4 years at par. During the year 2010-2011, as the company did not have sufficient cash resources to redeem the preference shares, it issued 10,000, 14% debentures of ₹ 10 each at a premium of 10%. At the time of redemption of 12% preference shares, the amount to be transferred to capital redemption reserve =?
(A) ₹ 90,000
(B) ₹ 1,00,000
(C) ₹ 2,00,000
(D) ₹ 1,10,000
Hint:
Redemption of Preference Shares – Corporate and Management Accounting MCQ 5
Preference shares can be redeemed either:

  • Out of the profits of the company available for dividend or
  • Out of the proceeds of a fresh issue of shares made for the purpose of redemption.

Thus, Company can issue debenture but it cannot be utilized for the redemption of preference shares.
Answer:
(C) ₹ 2,00,000

Question 31.
Preference shares amounting to ₹ 2,00,000 are redeemed at a premium of 5%, by the issue of equity shares amounting to ₹ 1,00,000 at a premium of 10%. The amount to be transferred to capital redemption reserve =?
(A) ₹ 1,05,000
(B) ₹ 1,00,000
(C) ₹ 2,00,000
(D) ₹ 1,11,000
Hint:
Redemption of Preference Shares – Corporate and Management Accounting MCQ 6
Note: Since P & L A/c has been used for redemption of preference shares ₹ 1,00,000 will be transferred to CRR.
Answer:
(B) ₹ 1,00,000

Question 32.
The balance sheet of A Ltd. has 20,000 9% preference shares of ₹ 10 each. The company redeemed preference shares at a premium of *2 per share. For redemption it realized investments at a value of ₹ 1,60,000 (Book value ₹ 2,00,000). At the time of redemption balance in the profit & loss account was ₹ 1,60,000. Issued at a premium of ₹ 40 per share, such a number of equity shares of ₹ 100 each for the purpose of redemption as to ensure that after the compliance with the requirements of the Companies Act, 2013, the credit balance in profit and loss account would be ₹ 25,000. No. of equity shares to be issued are & balance transferred to capital redemption account
(A) 1,200 equity shares & ₹ 80,000
(B) 800 equity shares & ₹ 1,20,000
(C) 1,450 equity shares & ₹ 55,000
(D) 1,050 equity shares & ₹ 95,000
Hint:
Redemption of Preference Shares – Corporate and Management Accounting MCQ 7
Redemption of Preference Shares – Corporate and Management Accounting MCQ 8
No. of equity shares to be issued = \(\frac{1,45,000}{100}\) = 1,450
Answer:
(C) 1,450 equity shares & ₹ 55,000

Question 33.
An Ltd. had 3,000,12% Redeemable Preference Shares of ₹ 100 each, fully paid up. The company issued ₹ 25,000 equity shares of ₹ 10 each at par and 1,000 14% Debentures of ₹ 100 each. The amount to be transferred to Capital Redemption A/c will be
(A) Nil
(B) ₹ 50,000
(C) ₹ 2,00,000
(D) ₹ 3,00,000
Hint:
Redemption of Preference Shares – Corporate and Management Accounting MCQ 9
Note: Since P & L A/c has been used for redemption of preference shares so much amount will be transferred to CRR,
Answer:
(B) ₹ 50,000

Question 34.
Ajay Ltd. decided to redeem ₹ 10,000 Preference shares of ₹10 each at a 10% premium. Balance in profit & loss account is ₹ 60,000 and in Securities, Premium A/c is ₹ 10,000. You are required to calculate the minimum number of equity shares to be issued for the purpose of redemption if new equity shares are to be issued at a 20% premium having a face value of ₹ 10 each.
(A) 4,000 equity shares
(B) 5,000 equity shares
(C) 3,333 equity shares
(D) 6,000 equity shares
Redemption of Preference Shares – Corporate and Management Accounting MCQ 10
Redemption of Preference Shares – Corporate and Management Accounting MCQ 11
No. of equity shares to be issued = \(\frac{40,000}{10}\) = 4,000
Answer:
(A) 4,000 equity shares

Question 35.
Preference shares of ₹ 9,00,000 are redeemable by issuing 3,000 equity shares of ₹ 100 each at ₹ 140. The amount to be transferred to Capital Redemption Reserve
(A) ₹ 3,80,000
(B) ₹ 5,00,000
(C) ₹ 4,20,000
(D) ₹ 6,00,000
Answer:
(D) ₹ 6,00,000

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