{"id":4981,"date":"2024-03-04T09:43:30","date_gmt":"2024-03-04T04:13:30","guid":{"rendered":"https:\/\/gstguntur.com\/?p=4981"},"modified":"2024-03-05T14:53:01","modified_gmt":"2024-03-05T09:23:01","slug":"buy-back-of-shares-corporate-and-management-accounting-mcq","status":"publish","type":"post","link":"https:\/\/gstguntur.com\/buy-back-of-shares-corporate-and-management-accounting-mcq\/","title":{"rendered":"Buy Back of Shares \u2013 Corporate and Management Accounting MCQ"},"content":{"rendered":"

Students should practice Buy Back of Shares \u2013 Corporate and Management Accounting CS Executive MCQ<\/a> Questions with Answers based on the latest syllabus.<\/p>\n

Buy Back of Shares \u2013 Corporate and Management Accounting MCQ<\/h2>\n

Question 1.
\nProvisions relating to buying back securities are contained in the Companies Act, 2013.
\n(A) Section 77
\n(B) Section 77A
\n(C) Section 68
\n(D) Section 63
\nAnswer:
\n(C) Section 68<\/p>\n

Question 2.
\nA company may purchase its own shares or other specified securities out of
\nA. Free reserves
\nB. Securities premium account
\nC. Proceeds of issue of any shares
\nD. Proceeds of issue of specified securities.
\nSelect the correct answer from the options given below.
\n(A) A and C only
\n(B) A, B, and C only
\n(C) A, C, and D only
\n(D) A or B or C or D
\nAnswer:
\n(D) A or B or C or D<\/p>\n

Question 3.
\nSection 68 of the Companies Act, 2013 provides that no buy-back of any kind of shares or other specified securities shall be made out of the
\n(A) Securities premium balance as it stood before buy-back.
\n(B) Proceeds of an earlier issue of the same kind of shares or same kind of other specified securities.
\n(C) General reserve in excess of 15% balance as per latest audited balance sheet.
\n(D) Proceeds of issue of specified securities.
\nAnswer:
\n(B) Proceeds of an earlier issue of the same kind of shares or same kind of other specified securities.<\/p>\n

Question 4.
\nProvisions of Section 68 relating to buy-back of shares are applicable to –
\n(A) Private companies
\n(B) Public companies
\n(C) Listed companies
\n(D) All of the above
\nAnswer:
\n(D) All of the above<\/p>\n

Question 5.
\nNo company shall purchase its own shares or other specified securities unless buy-back is authorized by its –
\n(A) Memorandum of Association
\n(B) Registrar of Companies
\n(C) Shareholders agreement
\n(D) Article of Association
\nAnswer:
\n(D) Article of Association<\/p>\n

Question 6.
\nThe maximum permissible buy-back under the Companies Act, 2013 is
\n(A) 10% of paid-up capital with Board resolution.
\n(B) 25% of paid-up capital with Board resolution.
\n(C) 25% of the aggregate of paid-up capital and free reserves of the company with a special resolution of shareholders.
\n(D) 25% of the aggregate of paid-up capital and free reserves of the company with an ordinary resolution of shareholders.
\nAnswer:
\n(C) 25% of the aggregate of paid-up capital and free reserves of the company with a special resolution of shareholders.<\/p>\n

Question 7.
\nWhich of the following is the correct journal entry for the \u2018Amount due on buyback of shares?
\n\"Buy
\nAnswer:
\n(C)<\/p>\n

Question 8.
\nFor buy-back up to of the company, Board resolution is sufficient.
\n(A) 10% of paid-up capital
\n(B) 10% of free reserves
\n(C) 10% of paid-up capital or free reserves
\n(D) 10% of paid-up capital and free reserves
\nAnswer:
\n(D) 10% of paid-up capital and free reserves<\/p>\n

Question 9.
\nBuy-back of equity shares in any financial year should not exceed –
\n(A) 10% of net worth
\n(B) 25% of the aggregate of paid-up capital and free reserves of the company
\n(C) 25% of the paid-up equity capital
\n(D) 25% of the aggregate of paid-up equity capital and preference capital
\nAnswer:
\n(C) 25% of the paid-up equity capital<\/p>\n

Question 10.
\nAs per Section 68 of the Companies Act, 2013, the post-buy-back debt-equity ratio should not exceed –
\n(A) 1
\n(B) 1.5
\n(C) 2
\n(D) 3
\nAnswer:
\n(C) 2<\/p>\n

Question 11.
\nFor the purpose of calculating the debt-equity ratio which of the following debts are considered –
\n(A) Secured debts
\n(B) Unsecured debts
\n(C) Current liabilities
\n(D) All of the above
\nAnswer:
\n(D) All of the above<\/p>\n

Question 12.
\nCompanies are allowed to buy back shares which are:
\n(A) Partly paid-up
\n(B) Fully paid-up
\n(C) Partly paid-up or fully paid-up at the option of the company
\n(D) Fully paid-up and partly paid-up with the permission of Central Government
\nAnswer:
\n(B) Fully paid-up<\/p>\n

Question 13.
\nThe buy-back of the shares or other specified securities listed on any recognized stock exchange is in accordance with the –
\n(A) SEBI (Buy-Back of Securities) Regulations, 2018
\n(B) SEBI (Buy-Back of Securities) Regulations, 2014
\n(C) SEBI (Buy-Back of Securities) Regulations, 1992
\n(D) SEBI (Buy-Back of Securities) Regulations, 1994
\nAnswer:
\n(A) SEBI (Buy-Back of Securities) Regulations, 2018<\/p>\n

Question 14.
\nNo offer of buy-back shall be made within a period of reckoned from the date of the closure of the preceding offer of buy-back
\n(A) 6 months
\n(B) 1 year
\n(C) 2 years
\n(D) 10 months
\nAnswer:
\n(B) 1 year<\/p>\n

Question 15.
\nThe notice of the meeting at which the special resolution is proposed to be passed relating to buy-back of shares shall be accompanied by an explanatory statement stating
\n(A) Full and complete disclosure of all material facts
\n(B) Analysis of debt-equity
\n(C) Gross profit ratio before buy-back
\n(D) Chairman\u2019s view on buy-back
\nAnswer:
\n(A) Full and complete disclosure of all material facts<\/p>\n

Question 16.
\nWhich of the following method of the buyback is allowed under the Companies Act, 2013?
\n(I) Buy-back from the existing shareholders or security holders on a proportionate basis.
\n(II) Buy-back from the promoters of the company only on a selective basis.
\n(Ill) Buy-back from the open market.
\nSelect the correct answer from the options given below.
\n(A) (I) only
\n(B) (I) and (II) only
\n(C) (I) and (III) only
\n(D) (I), (II) and (Ed)
\nAnswer:
\n(C) (I) and (III) only<\/p>\n

Question 17.
\nWhere a company proposes to buy-back its own shares or other specified securities, it shall, before making such buy-back, file with the ROC and the SEBI, a declaration of solvency signed by –
\n(A) at least 2 directors of the company, one of whom shall be the managing director.
\n(B) at least 2 directors, managing director, and Chief Financial Officer, if any.
\n(C) at least 2 directors of the company and Company Secretary, if any.
\n(D) at least 3 directors of the company, one of whom shall be the managing director.
\nAnswer:
\n(A) at least 2 directors of the company, one of whom shall be the managing director.<\/p>\n

Question 18.
\nA company used a balance of \u2018General Reserve\u2019 and \u2018P & L A\/c\u2019 for buy-back of equity shares. Which of the following is the correct journal entry for this transaction?
\n\"Buy
\nAnswer:
\n(C)<\/p>\n

Question 19.
\nDeclaration of solvency in relation to buyback of shares has to be filed in
\n(A) Form SH-6
\n(B) Form SH-9
\n(C) Form SH-4
\n(D) Form SH-8
\nAnswer:
\n(B) Form SH-9<\/p>\n

Question 20.
\nAs per Section 68(6) of the Companies Act, 2013, declaration of solvency should be verified by an affidavit to the effect that the Board of Directors of the company has made a full inquiry into the affairs of the company as a result of which they have formed an opinion that it is capable of meeting its liabilities and will not be rendered insolvent within a period of_____from the date of the declaration adopted by the Board.
\n(A) 6 months
\n(B) 1 year
\n(C) 2 years
\n(D) 10 months
\nAnswer:
\n(B) 1 year<\/p>\n

Question 21.
\nWhere a company buys back its own shares or other specified securities, it shall extinguish and physically destroy the shares or securities so bought back within the last date of completion of buy-back.
\n(A) 3 days
\n(B) 8 days
\n(C) 7 days
\n(D) 9 days
\nAnswer:
\n(C) 7 days<\/p>\n

Question 22.
\nWhere a company completes a buyback of its shares or other specified securities, it shall not make a further issue of the same kind of shares or other securities including allotment of new shares u\/s 62( 1 )(a) [i. e. right issue] or other specified securities within a period of –
\n(A) 6 months
\n(B) 1 year
\n(C) 2 years
\n(D) 10 months
\nAnswer:
\n(A) 6 months<\/p>\n

Question 23.
\nWhich of the following is allowed within the next 6 months after the buyback of share?
\n(A) Bonus issue
\n(B) Conversion of warrants
\n(C) Stock option schemes
\n(D) All of the above
\nAnswer:
\n(D) All of the above<\/p>\n

Question 24.
\nWhich of the following is allowed within the next 6 months after the buyback of share?
\n(A) Stock option schemes
\n(B) Sweats equity
\n(C) Conversion of preference shares or debentures into equity shares
\n(D) All of the above
\nAnswer:
\n(D) All of the above<\/p>\n

Question 25.
\nWhich of the following method of buy-back is allowed under the Companies Act, 2013?
\n(I) Buy-back by way of purchasing the securities issued to employees of the company pursuant to a scheme of stock option.
\n(II) Buy-back by way of purchasing the securities issued to employees of the company pursuant to a scheme of sweat equity.
\nSelect the correct answer from the options given below:
\n(A) (I) only
\n(B) (II) only
\n(C) Both (I) and (II)
\n(D) Neither (I) nor (II)
\nAnswer:
\n(C) Both (I) and (II)<\/p>\n

Question 26.
\nThe Paid-up equity shares capital of ABC Ltd. is \u20b9 50,00,000 having a face value of \u20b9 10 each fully paid-up. Other details:
\nGeneral Reserve = \u20b9 15,00,000
\nCapital Redemption Reserve = \u20b9 4,00,000
\nProfit & Loss Account = \u20b9 1,00,000
\nStatutory reserve = \u20b9 6,40,000
\nSecurities Premium = \u20b9 1,00,000
\nThe Board of Directors passed a resolution in a Board meeting to buy back a maximum number of shares as allowed by law. Maximum No. of shares that can be brought back =?
\n(A) 55,000 shares
\n(B) 67,000 shares
\n(C) 1,25,000 shares
\n(D) 78,000 shares
\nHint:
\nWhere buy-back is up to 10% of paid-up capital and free reserves of the company Board resolution is sufficient.
\n(50,00,000 + 15,00,000 + 1,00,000 + 1,00,000) \u00d7 10% = 6,70,000 6,70,000\/10 = 67,000
\nAnswer:
\n(B) 67,000 shares<\/p>\n

Question 27.
\nN Ltd. had 90,000 equity shares of \u20b9 100 each, fully paid up. The company decided to buy back 10% shares at par by the issue of the sufficient number of preference shares. N Ltd. does not have any reserves.
\nHow many preference shares are required to be issued if new preference shares are to be issued at \u20b9 10 each?
\n(A) 9,00,000 shares
\n(B) 90,000 shares
\n(C) 1,00,000 shares
\n(D) 1,20,000 shares
\nHint:
\nAmount due to equity shareholders on buy-back = 90,000 \u00d7 100 \u00d7 10% = 9,00,000
\nNo. of shares to be issued = \\(\\frac{9,00,000}{10}\\) = 90,000
\nAnswer:
\n(B) 90,000 shares<\/p>\n

Question 28.
\nS Ltd. decided to buy back 2,000 equity shares of \u20b9 100 each at a premium of 10%. For the purpose of redemption, the company issued 15,0 10% Preference shares of \u20b9 10 each at a premium of 20%. Company has sufficient balance in Profit & Loss A\/c. At the time of buy-back shares, the amount to be transferred by the company to the Capital Redemption Reserve Account =?
\n(A) \u20b9 20,000
\n(B) \u20b9 50,000
\n(C) \u20b9 1,50,000
\n(D) \u20b9 2,00,000
\nHint:
\n\"Buy
\nNote 1: It is noted that in case of redemption of preference shares securities premium balance cannot be utilized for repayment of the ‘preference share capital\u2019 amount. However, this condition is not applicable for buy-back of equity shares because as per Section 68 of the Companies Act, 2013, Securities Premium has to be treated as \u2018free reserve’. Thus, securities premium collected on the issue of shares can be utilized in repayment of Equity Capital Amount.<\/p>\n

Note 2: Total amount collected on the issue of preference shares is \u20b9 1,80,000 whereas the amount payable on buy-back of shares is \u20b9 2,00,000. Thus, a shortage of \u20b9 20,000 will be taken from the profit & loss account because Section 68 of the Companies Act, 2013 allows buy-back<\/p>\n

    \n
  1. Out of proceeds of fresh issue of securities<\/li>\n
  2. Free Reserve and<\/li>\n
  3. Securities premium.<\/li>\n<\/ol>\n

    Note 3: As per Section 69, where a company purchases its own shares out of free reserves or securities premium account, a sum equal to the nominal value of the shares so purchased shall be transferred to the Capital Redemption Reserve (CRR) account. Since in the given case amount of \u20b9 20,000 utilized from the profit & loss account a sum of \u20b9 20,000 must be transferred to the Capital redemption amount.<\/p>\n

    Note 4: It is not possible to give such a detailed explanation for each MCQ, so students are advised to apply all the provisions of Section 68 & Section 69 before arriving at any conclusion as to the final answer of any MCQ. However, relevant calculations are given in short for other MCQs in this chapter.
    \nAnswer:
    \n(A) \u20b9 20,000<\/p>\n

    Question 29.
    \nDuring the year 2018-2019, T Ltd. buy-back 20,000 equity shares of \u20b9 100 each at a premium of 5%. During the year 2018-2019, as the company did not have sufficient cash resources to buy back equity shares, it issued \u20b9 1,00,000, 12% Preference shares of \u20b9 10 each at a premium of 15%. The company has sufficient balance in general reserve. At the time of buy-back equity shares, the amount to be transferred to capital redemption reserve =?
    \n(A) \u20b9 10,00,000
    \n(B) \u20b9 9,50,000
    \n(C) \u20b9 12,00,000
    \n(D) \u20b9 15,00,000
    \nHint:
    \n\"Buy
    \nAnswer:
    \n(B) \u20b9 9,50,000<\/p>\n

    Question 30.
    \nEquity shares amounting to \u20b9 2,00,000 are brought back at a premium of 5%, by the issue of preference shares amounting to \u20b9 1,00,000 at a premium of 10%. The amount to be transferred to capital redemption reserve =?
    \n(A) \u20b9 1,00,000
    \n(B) \u20b9 90,000
    \n(C) \u20b9 1,50,000
    \n(D) \u20b9 50,000
    \nHint:
    \n\"Buy
    \nAnswer:
    \n(A) \u20b9 1,00,000<\/p>\n

    Question 31.
    \nABC Ltd. has paid-up equity capital of 10,00,000 equity shares of \u20b9 10 each fully paid-up. The position of reserves is as follows:
    \nGeneral Reserve = \u20b9 30,00,000
    \nProfit & Loss Account = \u20b9 2,00,000
    \nSecurities Premium = \u20b9 2,00,000
    \nThe company decided to buy back 2,00,000 equity shares of \u20b9 10 each at 25% premium. For this purpose, the company sold the entire investments at \u20b9 12,00,000 (book value \u20b9 10,00,000) and made a fresh issue of 10% preference shares of \u20b9 100 each to the extent minimum after utilizing the securities premium account and half of the general reserve. How many preference shares must be issued by the company so that provisions of the Companies Act, 2013 get complied with?
    \n(A) 20,000 preference shares
    \n(B) 40,000 preference shares
    \n(C) 1,000 preference shares
    \n(D) 4,000 preference shares
    \nAnswer:
    \n(A) 20,000 preference shares<\/p>\n

    Question 32.
    \nFollowing is the extract of the balance sheet of Light Co. Ltd.<\/p>\n\n\n\n\n\n\n\n\n\n
    \u00a0<\/strong><\/td>\n\u20b9<\/strong><\/td>\n<\/tr>\n
    Equity Shares of \u20b9 10 each<\/td>\n10,00,000<\/td>\n<\/tr>\n
    Securities Premium<\/td>\n2,40,000<\/td>\n<\/tr>\n
    Reserves<\/td>\n7,50,000<\/td>\n<\/tr>\n
    Proht & Loss Account<\/td>\n2,80,000<\/td>\n<\/tr>\n
    Bank<\/td>\n9,10,000<\/td>\n<\/tr>\n
    Non-Trading Investments<\/td>\n4,20,000<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

    The company bought back 15,000 shares at \u20b9 40 each. The transaction in respect of buy-back was financed by the sale of 2\/3rd of non-trade investment for \u20b9 5,90,000.
    \nAmount to be transferred to capital redemption reserve =?
    \n(A) \u20b9 6,00,000
    \n(B) \u20b9 1,00,000
    \n(C) \u20b9 4,50,000
    \n(D) \u20b9 1,50,000
    \nHint:
    \n15,000 \u00d7 10 = 1,50,000
    \nAnswer:
    \n(D) \u20b9 1,50,000<\/p>\n

    Question 33.
    \nFollowing is the extract of the balance sheet of Tube Ltd.<\/p>\n\n\n\n\n\n\n\n\n\n
    \u00a0<\/strong><\/td>\n\u20b9<\/strong><\/td>\n<\/tr>\n
    Equity Shares of \u20b9 10 each<\/td>\n20,00,000<\/td>\n<\/tr>\n
    Securities Premium<\/td>\n4,80,000<\/td>\n<\/tr>\n
    Reserves<\/td>\n15,00,000<\/td>\n<\/tr>\n
    Profit & Loss Account<\/td>\n5,60,000<\/td>\n<\/tr>\n
    Bank<\/td>\n18,20,000<\/td>\n<\/tr>\n
    Non-Trading Investments<\/td>\n8,40,000<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

    The company bought back 30,000 shares at \u20b9 40 each. The transaction in respect of buyback was financed by the sale of 2\/3rd of non-trade investment for \u20b9 11,80,000.
    \nBank balance after buy-back will be –
    \n(A) \u20b9 12,00,000
    \n(B) \u20b9 16,00,000
    \n(C) \u20b9 14,50,000
    \n(D) \u20b9 18,00,000
    \nHint:
    \n\"Buy
    \nAnswer:
    \n(D) \u20b9 18,00,000<\/p>\n

    Question 34.
    \nThe following information is available from the audited balance sheet of TH Ltd.:<\/p>\n\n\n\n\n\n\n\n\n
    \u00a0<\/strong><\/td>\n(\u20b9 in lakhs)<\/strong><\/td>\n<\/tr>\n
    Equity Share Capital (3,000 lakh Shares of \u20b9 10 each)<\/td>\n30,000<\/td>\n<\/tr>\n
    Securities Premium A\/c<\/td>\n3,000<\/td>\n<\/tr>\n
    General Reserve<\/td>\n10,000<\/td>\n<\/tr>\n
    Secured Loans<\/td>\n40,000<\/td>\n<\/tr>\n
    Unsecured Loans<\/td>\n22,000<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

    Compute the maximum limit up to which buy-back is permitted in the financial year 2018-2019.
    \n(A) 800 lakh shares
    \n(B) 600 lakh shares
    \n(C) 500 lakh shares
    \n(D) 400 lakh shares
    \nHint:
    \n(1) The buy-back of equity shares in any financial year should not exceed 25% of its total paid-up equity capital in that financial year. [\u20b9 30,000 \u00d7 2596 = \u20b9 7,500]<\/p>\n

    (2) 25% of the aggregate of paid-up capital and free reserves of the company. [(30,000 + 3,000 + 10,000) \u00d7 25% = \u20b9 10,750]<\/p>\n

    (3) The ratio of the aggregate of secured and unsecured debts owed by the company after buy-back is not more than twice the paid-up capital and its free reserves.<\/p>\n

    Let the amount of buy-back be \u2018x\u2019
    \n\"Buy
    \nSince, out of the above three calculations, the minimum amount is 6,000; hence maximum face value of shares that can be bought is \u20b9 6,000 lakhs i.e. 600 lakh shares. (6,000\/10 = 600)
    \nAnswer:
    \n(B) 600 lakh shares<\/p>\n

    Question 35.
    \nX Ltd. proposes to buy back \u20b9 6,00,000 equity capital at 50% premium by issuing 2,000 14% preference shares of \u20b9 100 each at 20% premium. It has balance in Securities Premium, General Reserve and P & L A\/c of \u20b9 3,50,000; \u20b9 9,30,000 & \u20b9 48,000 f respectively. For this purpose, it sold all of its investments of \u20b9 1,48,000 for \u20b9 1,50,000. The company wants to keep the balance of 6,00,000 in general reserve. What are the balances of (i) Securities Premium A\/c and (ii) Capital Redemption Reserve A\/c after giving effect to the above transactions?
    \n\"Buy
    \nHint:
    \n\"Buy
    \nAnswer:
    \n(C)<\/p>\n","protected":false},"excerpt":{"rendered":"

    Students should practice Buy Back of Shares \u2013 Corporate and Management Accounting CS Executive MCQ Questions with Answers based on the latest syllabus. Buy Back of Shares \u2013 Corporate and Management Accounting MCQ Question 1. Provisions relating to buying back securities are contained in the Companies Act, 2013. (A) Section 77 (B) Section 77A (C) …<\/p>\n

    Buy Back of Shares \u2013 Corporate and Management Accounting MCQ<\/span> Read More »<\/a><\/p>\n","protected":false},"author":3,"featured_media":11349,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"spay_email":"","footnotes":""},"categories":[102],"tags":[],"jetpack_featured_media_url":"https:\/\/gstguntur.com\/wp-content\/uploads\/2021\/10\/Buy-Back-of-Shares-\u2013-Corporate-and-Management-Accounting-MCQ.png","_links":{"self":[{"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/posts\/4981"}],"collection":[{"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/comments?post=4981"}],"version-history":[{"count":1,"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/posts\/4981\/revisions"}],"predecessor-version":[{"id":11350,"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/posts\/4981\/revisions\/11350"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/media\/11349"}],"wp:attachment":[{"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/media?parent=4981"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/categories?post=4981"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/tags?post=4981"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}