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Unsecured debentures

Explanation: Debentures that are not secured by any security or do not have a charge on the assets are known as unsecured or naked debentures.

Irredeemable debentures

Explanation: Debentures that are not redeemable during the life time of a company are known as irredeemable debentures. These are also known as perpetual debentures.

Redeemable debentures

Explanation: The debentures that are to be paid back after a specified period of time, as per the terms of the issue, are known as redeemable debentures. They can only be redeemed after the expiry of a specified period.

Convertible debentures

Explanation: Debentures that have an option/right to be converted into shares (either preference or equity shares) after a specified time period are known as convertible debentures.

As per Table A, the amount on call on a share must not exceed 25 per cent. 

Explanation: A company cannot call more than 25% of the nominal value of shares in one call.

As per SEBI guidelines, the minimum amount payable on share application should be 25% of nominal value of share. 

Explanation: As per SEBI, at least 25% of the nominal value of shares should be called on application.

As per SEBI guidelines, the minimum amount payable on share application should be 25% of nominal value of share. 

Explanation: As per SEBI, at least 25% of the nominal value of shares should be called on application.

As per section 69 (3) of the Companies Act, 1956, the minimum amount payable on share application should be 5 per cent. 

Explanation: Minimum amount payable on share application should be 5% of the nominal value of the share.

False 

Explanation: In private placement of shares, no applications are invited from the general public for subscribing to the shares of the company. According to section 81(1A) of the Companies Act, 1956, when the promoters of a public company are confident of raising capital through private sources, the company does not invite the public to subscribe for shares. Instead the company promotes the private placement of shares to promoters, friends and other private sources. The promoters are required to prepare a draft prospectus known as ‘statement in lieu of prospectus’ and file it with the Registrar of Companies at least 3 days before the first allotment.

False 

Explanation: Preference shares are the shares with a fixed rate of dividend. They receive dividend at the pre-defined rate, whereas equity shares do not guarantee a fixed rate of dividend. Moreover, it is uncertain whether the dividend will be distributed to them or profits will be retained.

True 

Explanation: When the promoters of a public company are confident of raising capital through private sources, the company does not invite the general public to subscribe for shares instead the company promotes the private placement of shares to promoters, friends and other private sources. The company is not required to issue a prospectus. Also, no applications are invited for issue of shares. This saves time, cost and money.

False

Explanation: It is not necessary that the whole amount of share capital, i.e. authorized capital, is called up at once. The part of authorized capital that is issued to the shareholders is called issued capital, whereas the part that remains unissued is called unissued capital. The unissued capital of the company can be issued anytime during the life time of the company.

Share issued at Premium 

Explanation: Shares are said to be issued at a premium when the issue price of a share is more than its face value. The amount of premium is credited to a separate account known as Securities Premium Account.

False 

Explanation: It is not necessary that the whole amount of share capital, i.e. authorized capital, is called up at once. The part of authorized capital that is issued to the shareholders is called issued capital, whereas the part that remains unissued is called unissued capital. The unissued capital of the company can be issued anytime during the life time of the company.

False

Explanation: Shares can be issued at a discount by public or private companies, subject to a few conditions (as per Section 79 of Companies Act, 1956) that are mentioned below:

➢ Shares to be issued at a discount must be of an existing class already issued, i.e. a new class of shares cannot be issued at a discount.

➢ Shares issued at a discount must be authorised by the resolution passed in the general meeting of a company and approved by SEBI.

➢ The resolution should specify the maximum rate of discount (not exceeding 10%).

➢ At least one year should have elapsed since the company commenced business.

➢ After the permission of SEBI, the shares to be issued at a discount should be issued within two months.

False 

Explanation: Shares can be issued at par, at discount or at premium. It is not necessary that shares should be issued at par. They can be issued at below the face value, i.e. at a discount, or above the face value, i.e. at premium.

In case of cumulative preference shares, the unpaid dividend on preference shares is accumulated and treated as arrears. In other words, the dividend on such shares is carried forward to the next year. The unpaid dividend on these shares keeps on accumulating till it is paid.

Allotment means accepting the applications of the applicants and distributing the shares to them. After the acceptance, the company allots the shares via share certificates. The share certificate contains the details about the number of shares allotted to the applicant. Shareholders pay the prescribed allotment money for getting the shares allotted.

When the debentures are repaid by paying a price that is more than their face value it is known as ‘redemption of debentures at a premium’.

Repayment of the principal amount of debentures is known as redemption of debentures. It can be at a premium, discount or par. The conditions about redemption are stipulated at the time of issue of debentures. That is, whether redemption is to be made at a price above its face value (at a premium), or at par, i.e. at face value, or at a price below the face value (i.e. redemption at discount) is decided at the time of issue of the debentures.

Debentures that are not redeemable during the life time of a company are known as irredeemable debentures. Therefore, these are also known as perpetual debentures.

Paid up Capital 

Explanation: A company declares dividend on the amount of money paid up by the shareholders. That is, dividend is declared on paid-up share capital. It represents the money received from the shareholders on the shares held by them. It is not necessary that every shareholder will pay the whole amount of called-up share capital; therefore, a company pays dividend on the amount of paid-up capital.

i. Calls-in-Arrears

ii. Issue at par

iii. Shareholder

iv. Joint-stock company

v. Subscribed capital

Calls-in-arrears 

Explanation: Sometimes, a shareholder might not pay the call money on all the shares or on some of the shares held by him. In such cases, the unpaid amount is treated as call in arrears. According to Table A, the company is authorised to charge interest on call in arrears @ 5% p.a. till the amount remains unpaid. The amount of call in arrears is deducted from the called-up capital in the Balance Sheet to show the net paid-up capital by the shareholder.

Calls-in-arrears 

Explanation: Sometimes, a shareholder might fail to pay allotment or call money on all the shares or some of the shares held by him/her. The amount that is called up by a company but not paid (received) by (from) a shareholder represents the amount due, i.e. the outstanding amount. Therefore, it is termed as calls-in-arrears. Calls-in-arrears are shown in a company’s Balance Sheet by way of deduction from the called-up capital.

Solution Calls-in-arrears 

Explanation: Sometimes, a shareholder might not pay the call money on all the shares or on some of the shares held by him. In such cases, the unpaid amount is treated as call in arrears. According to Table A, the company is authorised to charge interest on call in arrears @ 5% p.a. till the amount remains unpaid. The amount of call in arrears is deducted from the called-up capital in the Balance Sheet to show the net paid-up capital by the shareholder.

Authorised / Nominal Capital 

Explanation: The maximum amount of capital beyond which a company is not allowed to raise funds is known as its authorised share capital. This capital is stated in the capital clause of the Memorandum of Association of the company at the time of its incorporation.

i. (b) credited

ii. (c) Authorised Capital

iii. (b) at a discount

iv. (a) at par

v. (b) at a premium

Issue of shares at a premium means the issue of shares by a company at a price higher than the face value of the shares. (The difference between the issue price, i.e., the price at which the shares are issued, and the face value of the shares is called share premium) for example, when shares of the face value of Rs.10 each are issued at a price of Rs.12 per share, the shares are said to be issued at a premium.

As per Section 78 of the Companies Act, 1956, when the shares are issued to the public at a price more than their par value, i.e. face value, the shares are said to be issued at a premium. The amount of premium received is credited to a separate account known as Securities Premium Account. It can be used for the following purposes: a. For writing-off preliminary expenses of the company b. For writing-off expenses of commission paid or discount allowed on issue of shares or debentures of the company c. For issuing bonus shares

As per Section 79 of the Companies Act, 1956, issuance of shares at a discount implies that shares are issued at a price below their par value, i.e. the face value of the shares. The discount on issuance of shares is debited to Discount on Issue of Shares Account. For example, a share with a face value of Rs 10 is issued at a discount of 10%. So, a discount of Re 1 per share will be offered and the share will be issued at Rs 9.

False 

Explanation: A company can forfeit the shares of a shareholder if he fails to pay any instalment due from him to the company. A company is required to issue a clear 14 days’ notice to the defaulting shareholder asking him to pay the due amount on his shares, failing which, his shares are forfeited.

False

Explanation: A company can forfeit the shares of a shareholder if he fails to pay any instalment due from him to the company. A company is required to issue a clear 14 days’ notice to the defaulting shareholder asking him to pay the due amount on his shares, failing which, his shares are forfeited.

False 

Explanation: Shares can be issued at a discount by public or private companies, subject to a few conditions (as per Section 79 of Companies Act, 1956) that are mentioned below: 

➢ Shares to be issued at a discount must be of an existing class already issued, i.e. a new class of shares cannot be issued at a discount. 

➢ Shares issued at a discount must be authorised by the resolution passed in the general meeting of a company and approved by SEBI. 

➢ The resolution should specify the maximum rate of discount (not exceeding 10%). 

➢ At least one year should have elapsed since the company commenced business. 

➢ After the permission of SEBI, the shares to be issued at a discount should be issued within two months.

False 

Explanation: Forfeited shares can be issued at par, at a discount or at a premium, as decided by the board of directors. The forfeited amount is transferred to Share Forfeiture Account. However, when the forfeited shares are reissued, the balance amount is transferred to the Capital Reserve Account.

False

Explanation: Forfeited shares can be issued at par, at a discount or at a premium, as decided by the board of directors. The forfeited amount is transferred to Share Forfeiture Account. However, when the forfeited shares are reissued, the balance amount is transferred to the Capital Reserve Account.

False 

Explanation: A company can forfeit the shares of a shareholder if he fails to pay any instalment due from him to the company. A company is required to issue a clear 14 days’ notice to the defaulting shareholder asking him to pay the due amount on his shares, failing which, his shares are forfeited.

False

Explanation: Shares can be issued for cash or for consideration other than cash. Sometimes shares are issued to vendors against purchase of assets. Also, shares are issued to the promoters of a company for setting up the company.

False 

Explanation: Shares can be issued at par, at discount or at premium. It is not necessary that shares should be issued at par. They can be issued at below the face value, i.e. at a discount, or above the face value, i.e. at premium.

False 

Explanation: Forfeited shares can be issued at par, at a discount or at a premium, as decided by the board of directors. The forfeited amount is transferred to Share Forfeiture Account. However, when the forfeited shares are reissued, the balance amount is transferred to the Capital Reserve Account.

False 

Explanation: Shares can be issued for cash or for consideration other than cash. Sometimes shares are issued to vendors against purchase of assets. Also, shares are issued to the promoters of a company for setting up the company.

True 

Explanation: On forfeiture, the amount received on such shares is transferred to the Share Forfeiture Account. Later, when the forfeited shares are reissued at a discount, the amount of discount is set off against the Share Forfeiture Account and the balance is transferred to the Capital Reserve Account. Only when the forfeited shares are reissued, the amount in the Share Forfeiture Account is transferred to the Capital Reserve Account.

True 

Explanation: On forfeiture, the amount received on such shares is transferred to the Share Forfeiture Account. Later, when the forfeited shares are reissued at a discount, the amount of discount is set off against the Share Forfeiture Account and the balance is transferred to the Capital Reserve Account. Only when the forfeited shares are reissued, the amount in the Share Forfeiture Account is transferred to the Capital Reserve Account.

Capital Reserve 

Explanation: It is a reserve created out of capital profits of an organisation. It is maintained out of profits earned from specific transactions of a capital nature. It is capital reserve to which the excess amount on Share Forfeited Account is transferred. Such excess amount represents the profit on re-issue of forfeited shares.

False

Explanation: Shares can be issued at par, at discount or at premium. It is not necessary that shares should be issued at par. They can be issued at below the face value, i.e. at a discount, or above the face value, i.e. at premium.

True

Explanation: When the promoters of a public company are confident of raising capital through private sources, the company does not invite the general public to subscribe for shares instead the company promotes the private placement of shares to promoters, friends and other private sources. The company is not required to issue a prospectus. Also, no applications are invited for issue of shares. This saves time, cost and money.

False

Explanation: In private placement of shares, no applications are invited from the general public for subscribing to the shares of the company. According to section 81(1A) of the Companies Act, 1956, when the promoters of a public company are confident of raising capital through private sources, the company does not invite the public to subscribe for shares. Instead the company promotes the private placement of shares to promoters, friends and other private sources. The promoters are required to prepare a draft prospectus known as ‘statement in lieu of prospectus’ and file it with the Registrar of Companies at least 3 days before the first allotment.

False

Explanation: Preference shares are the shares with a fixed rate of dividend. They receive dividend at the pre-defined rate, whereas equity shares do not guarantee a fixed rate of dividend. Moreover, it is uncertain whether the dividend will be distributed to them or profits will be retained.

False 

Explanation: Equity shareholders have voting rights. However, it is the preference shareholders who enjoy preferential rights regarding dividend distribution and repayment of capital at the time of liquidation or in the event of winding up of a company.

False

Explanation: Equity shareholders have voting rights. However, it is the preference shareholders who enjoy preferential rights regarding dividend distribution and repayment of capital at the time of liquidation or in the event of winding up of a company.