CUET UG Accountancy Booster Test 3 Types of Shares -

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CUET UG Accountancy Booster Test 2 Types of Shares

⏱️ 30 Minutes

❓ 20 Questions

📌 Answers are locked once submitted — results and explanations appear at the end.

CUET UG Accountancy Booster Test 2 Types of Shares

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QUESTION 1 OF 20

📄 Passage

"However, notwithstanding the above two conditions, a holder of the preference share may have a right to participate fully or to a limited extent in the surpluses of the company as specified in the Memorandum or Articles of the company. Thus, the preference shares can be participating and non-participating. Similarly, these shares can be cumulative or non-cumulative, and redeemable or irredeemable."

Based on the passage, the classification of preference shares into cumulative or non-cumulative depends on specifications in the:

Answer Review

📄 Passage

Based on the passage, the classification of preference shares into cumulative or non-cumulative depends on specifications in the:

A Memorandum or Articles of the company

B Discretion of the creditors

C Directives from the bank

D SEBI (Disclosure and Investor Protection) Guidelines

💡 Short Explanation

Share rights are specified internally. Memorandum or Articles govern classification. Company documents define shareholder rights.

✅ Correct Answer Explanation

The passage directly states that preference share rights and classifications are specified in the Memorandum or Articles of the company. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Creditors do not determine share classification.
Option C → Banks have no authority here.
Option D → SEBI guidelines are unrelated to this classification.

🎯 Strategy

Used

Passage-Based Identification

Application:

The answer was directly extracted from the passage.

Final Logic:

Classification depends on company constitutional documents.

🧠 Memory Trick

"MOA & AOA Define Rights"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Cumulative Shares – Page X

📄 Passage

The passage suggests that preference shares can have additional rights beyond the standard two conditions. Which of these is an example of such an additional right mentioned?

A Differential voting rights

B The right to participate in the surpluses of the company

C The right to elect the Board of Directors

D The right to claim unpaid calls from equity holders

💡 Short Explanation

Participating preference shares share surplus profits. This is an additional preference right. Mentioned directly in the passage.

✅ Correct Answer Explanation

The passage specifically mentions the right "to participate fully or to a limited extent in the surpluses of the company." Therefore, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Not discussed in the passage.
Option C → Election rights belong mainly to equity shareholders.
Option D → No such right exists.

🎯 Strategy

Used

Passage-Based Identification

Application:

Additional right mentioned in the passage was identified directly.

Final Logic:

Participation in surplus profits is the added right.

🧠 Memory Trick

"Participating = Share Extra Profit"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Non-Cumulative Shares – Page X

3 A company has Rs. 2,00,000 profit. It pays Rs. 40,000 as preference dividend and Rs. 1,00,000 as standard equity dividend. If participating preference shareholders are entitled to 20% of the remaining surplus, what is the additional participating dividend amount?

A Rs. 20,000

B Rs. 10,000

C Rs. 30,000

D Rs. 12,000

💡 Short Explanation

Remaining surplus calculated first. Participating shareholders get 20%. Final additional dividend equals Rs. 12,000.

✅ Correct Answer Explanation

Remaining surplus: 200000 - 40000 - 100000 = 60000 Participating dividend: 20% × 60000 = 12000 Thus, additional participating dividend = Rs. 12,000. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Incorrect percentage application.
Option B → Half the correct amount.
Option C → Incorrect surplus calculation.

🎯 Strategy

Used

Substitution

Application:

Remaining surplus and participation percentage were calculated.

Final Logic:

20% of Rs. 60,000 = Rs. 12,000.

🧠 Memory Trick

"Find Surplus First"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Participating Shares – Page X

4 Assertion (A): Non-participating preference shares get exactly their fixed percentage of dividend, even if the company makes exceptionally high profits.
Reason (R): They hold residual claims on the company's assets.

A Both A and R are true and R is correct explanation.

B Both A and R are true but R is not explanation.

C A is true, but R is false.

D A is false, but R is true.

💡 Short Explanation

Non-participating shares receive fixed dividend only. Residual claims belong to equity shareholders. Reason statement is incorrect.

✅ Correct Answer Explanation

Assertion is true because non-participating preference shareholders receive only fixed dividend. Reason is false because residual claims belong to equity shareholders, not preference shareholders. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Reason is false.
Option B → Both statements are not true.
Option D → Assertion is true.

🎯 Strategy

Used

Assertion–Reason Analysis

Application:

Dividend and residual claim concepts were separated.

Final Logic:

Non-participating shares do not hold residual claims.

🧠 Memory Trick

"Residual Rights = Equity"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Non-Participating Shares – Page X

5 Which account can a company theoretically use to pay premium on the redemption of preference shares, according to the sources?

A Share Forfeiture Account

B Securities Premium Reserve Account

C Calls in Advance Account

D Share Application Account

💡 Short Explanation

Securities premium has specified legal uses. Redemption premium is one valid use. Therefore, this account is used.

✅ Correct Answer Explanation

Premium payable on redemption of preference shares may legally be adjusted through Securities Premium Reserve Account. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Share forfeiture account unrelated.
Option C → Calls in advance is liability account.
Option D → Share application account records applications only.

🎯 Strategy

Used

Legal Recall

Application:

Permitted uses of securities premium were identified.

Final Logic:

Redemption premium may be written off from securities premium.

🧠 Memory Trick

"Premium Pays Premium"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Redeemable Shares – Page X

6 An irredeemable share means that the capital repayment will happen:

A Only at the time of winding up of the company

B After a fixed term of 20 years

C At the discretion of the shareholder at any time

D When the company decides to forfeit the shares

💡 Short Explanation

Irredeemable shares are not repayable during company life. Repayment occurs only on winding up. Equity shares follow this nature.

✅ Correct Answer Explanation

Irredeemable shares remain outstanding throughout the company's existence and are repaid only during winding up. Thus, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Fixed maturity belongs to redeemable shares.
Option C → Shareholder cannot demand repayment freely.
Option D → Forfeiture is unrelated.

🎯 Strategy

Used

Definition Matching

Application:

Irredeemable nature of shares was identified.

Final Logic:

Repayment occurs only on winding up.

🧠 Memory Trick

"Irredeemable = Till Closure"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Irredeemable Shares – Page X

7 Evaluate the following:
(I) Equity shareholders are residual claimants of profits.
(II) Equity shareholders are residual claimants of assets upon winding up.
(III) Preference shareholders are residual claimants.

A Only I

B Only II

C I and II

D II and III

💡 Short Explanation

Equity shareholders receive residual profits. They also receive residual assets. Preference shareholders have preferential rights, not residual claims.

✅ Correct Answer Explanation

Statements I and II are correct because equity shareholders receive remaining profits and assets after all prior claims. Statement III is false because preference shareholders have preferential, not residual, claims. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Statement II is also correct.
Option B → Statement I is also correct.
Option D → Statement III is incorrect.

🎯 Strategy

Used

Statement Verification

Application:

Residual claim principle was analyzed.

Final Logic:

Equity shareholders are true residual claimants.

🧠 Memory Trick

"Equity Gets the Balance"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Residual Claims – Page X

8 If Total Profit is (TP), Preference Dividend is (PD), and Number of Equity Shares is (N), what is the formula for the maximum Variable Dividend Per Equity Share?

A (TP + PD) / N

B TP / (N + PD)

C (TP / N) - PD

D (TP - PD) / N

💡 Short Explanation

Preference dividend paid first. Remaining profit belongs to equity shareholders. Dividing by number of shares gives variable dividend per share.

✅ Correct Answer Explanation

Formula: (TP − PD) / N Thus, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Preference dividend should not be added.
Option B → Formula structure incorrect.
Option C → Incorrect mathematical expression.

🎯 Strategy

Used

Formula Identification

Application:

Residual profit formula was applied.

Final Logic:

Residual profit divided among equity shares.

🧠 Memory Trick

"Profit Minus Preference"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Variable Dividend – Page X

9 If Company X issues equity shares, the shareholders use their normal voting rights to do what primary action related to company management?

A Elect a Board of Directors as their representative

B Determine the daily production schedule

C Set the fixed dividend rate for preference shares

D Sanction the forfeiture of individual shares

💡 Short Explanation

Equity shareholders possess voting rights. Directors are elected through voting. Directors manage company affairs.

✅ Correct Answer Explanation

Normal voting rights enable equity shareholders to elect the Board of Directors to manage the company on their behalf. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Daily operations are managed by executives.
Option C → Preference dividend is predetermined.
Option D → Forfeiture decisions are not individual shareholder functions.

🎯 Strategy

Used

Conceptual Understanding

Application:

Voting rights were linked to management representation.

Final Logic:

Voting rights primarily elect directors.

🧠 Memory Trick

"Equity Votes for Directors"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Normal Voting – Page X

10 Match the share feature with its description:

List 1	List 2
1. Normal Voting	a. Standard right of equity owner
2. Differential Rights	b. Disproportionate voting to capital
3. Preferential Dividend	c. Fixed percentage before equity
4. Variable Dividend	d. Depends on available profit

A 1-b, 2-a, 3-d, 4-c

B 1-c, 2-b, 3-a, 4-d

C 1-b, 2-d, 3-a, 4-c

D 1-a, 2-b, 3-c, 4-d

💡 Short Explanation

Normal voting belongs to equity owners. Differential rights create unequal voting power. Variable dividend depends on profits.

✅ Correct Answer Explanation

Correct matching: 1. Normal Voting → b. Standard right of equity owner 2. Differential Rights → d. Disproportionate voting to capital 3. Preferential Dividend → a. Fixed percentage before equity 4. Variable Dividend → c. Depends on available profit Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Differential rights incorrectly matched.
Option B → Normal voting incorrectly paired.
Option D → Preferential dividend mismatched.

🎯 Strategy

Used

Option Grouping

Application:

Each share feature was matched with its description.

Final Logic:

Only Option C correctly matches all items.

🧠 Memory Trick

"Normal–Differential–Fixed–Variable"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Differential Rights – Page X

11 Equity capital is considered higher risk than preference capital because:

A It carries a fixed rate of dividend.

B It is paid last in both dividend distribution and capital repayment upon winding up.

C It does not carry voting rights.

D It is illegal to refund equity capital.

💡 Short Explanation

Equity shareholders are residual claimants. Preference shareholders receive priority first. Higher uncertainty creates greater risk.

✅ Correct Answer Explanation

Equity shareholders receive profits and repayment only after all prior claims are satisfied. Therefore, equity capital involves higher risk. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Fixed dividend belongs to preference shares.
Option C → Equity shares carry voting rights.
Option D → Refund legality is unrelated.

🎯 Strategy

Used

Conceptual Analysis

Application:

Risk-return relationship of equity shares was examined.

Final Logic:

Residual position increases risk.

🧠 Memory Trick

"Last Paid = Highest Risk"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: High Risk Equity – Page X

12 Arrange in sequence of increasing risk profile for the investor:
(1) Equity Shares
(2) Secured Debt/Creditors
(3) Preference Shares

A 1, 2, 3

B 3, 2, 1

C 1, 3, 2

D 2, 3, 1

💡 Short Explanation

Creditors face least risk. Preference shareholders carry moderate risk. Equity shareholders bear maximum risk.

✅ Correct Answer Explanation

Risk order: 1. Secured Debt/Creditors → Lowest risk 2. Preference Shares → Moderate risk 3. Equity Shares → Highest risk Thus, increasing risk sequence: 2 → 3 → 1 Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Reverse risk structure.
Option B → Creditors are not riskier than equity.
Option C → Equity cannot have lowest risk.

🎯 Strategy

Used

Sequential Arrangement

Application:

Financial claim priority was arranged according to risk.

Final Logic:

Creditors → Preference → Equity.

🧠 Memory Trick

"Debt Safe, Equity Risky"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Risk Profile – Page X

13 Though shareholders are the real owners, why do they not participate in the daily management of the company?

A It is legally prohibited by the SEBI guidelines.

B It is neither possible for all of them to participate nor considered desirable due to their large number.

C The Articles of Association strictly forbid it in all companies.

D They do not have voting rights.

💡 Short Explanation

Companies may have many shareholders. Collective management becomes impractical. Directors manage on shareholders' behalf.

✅ Correct Answer Explanation

Daily management by all shareholders is impractical due to their large number and complexity of operations. Thus, shareholders elect directors to manage affairs. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → No such SEBI prohibition exists.
Option C → Articles do not universally forbid it.
Option D → Shareholders do possess voting rights.

🎯 Strategy

Used

Conceptual Understanding

Application:

Ownership-management separation principle was applied.

Final Logic:

Large ownership base prevents direct management.

🧠 Memory Trick

"Too Many Owners, Few Managers"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Shareholders Rights – Page X

14 A company earns Rs. 5,00,000. It transfers Rs. 1,00,000 to general reserve. It has 10,000 8% Preference Shares of Rs. 100 each. What is the remaining profit available for equity profit sharing?

A Rs. 4,00,000

B Rs. 3,80,000

C Rs. 3,20,000

D Rs. 4,20,000

💡 Short Explanation

General reserve deducted first. Preference dividend paid afterward. Balance belongs to equity shareholders.

✅ Correct Answer Explanation

Preference dividend: 10000 × 100 × 8% = 80000 Remaining profit: 500000 - 100000 - 80000 = 320000 Thus, profit available for equity shareholders = Rs. 3,20,000. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Preference dividend ignored.
Option B → Incorrect subtraction.
Option D → Reserve transfer not deducted.

🎯 Strategy

Used

Substitution

Application:

Reserve and preference dividend were deducted sequentially.

Final Logic:

Residual profit = Rs. 3,20,000.

🧠 Memory Trick

"Reserve First, Preference Next"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Profit Sharing – Page X

15 According to Section 43 of the Companies Act, 2013, what defines an equity share?

A A share which is not a preference share.

B A share that receives a fixed dividend.

C A share with restricted transferability.

D A share issued only by a private company.

💡 Short Explanation

Equity shares are residual ownership shares. Law defines them negatively. Any non-preference share is equity share.

✅ Correct Answer Explanation

Section 43 states that equity shares are shares which are not preference shares. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Fixed dividend belongs to preference shares.
Option C → Transferability restriction relates to private companies.
Option D → Equity shares may be issued by public companies too.

🎯 Strategy

Used

Legal Recall

Application:

Statutory definition under Section 43 was applied.

Final Logic:

Non-preference share = Equity share.

🧠 Memory Trick

"Not Preference = Equity"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Section 43 Rules – Page X

16 The condition for issuing equity shares with differential rights regarding dividend must be prescribed in which document?

A Prospectus of the company

B Solvency declaration

C Section 43 of the Companies Act

D Articles of Association of the company

💡 Short Explanation

Differential rights need internal authorization. AOA prescribes rights and conditions. Company constitution governs such matters.

✅ Correct Answer Explanation

The Articles of Association prescribe conditions regarding equity shares with differential rights. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Prospectus merely invites subscription.
Option B → Solvency declaration is unrelated.
Option C → Section 43 provides broad classification only.

🎯 Strategy

Used

Definition Recall

Application:

Relevant governing document was identified.

Final Logic:

AOA governs differential rights.

🧠 Memory Trick

"AOA Controls Share Rights"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Articles Conditions – Page X

17 Which of the following is NOT a feature of a preference share according to the standard legal definition in the Companies Act?

A Preferential right to dividend

B Preferential voting rights in all matters of management

C Preferential right to capital repayment on winding up

D Can be cumulative or non-cumulative

💡 Short Explanation

Preference shares mainly carry financial priority. Normal voting rights belong to equity shareholders. Preference shareholders have limited voting rights.

✅ Correct Answer Explanation

Preference shareholders do not possess preferential voting rights in all management matters. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Valid feature of preference shares.
Option C → Capital repayment priority exists.
Option D → Preference shares may indeed be cumulative or non-cumulative.

🎯 Strategy

Used

Conceptual Elimination

Application:

Rights attached to preference shares were analyzed.

Final Logic:

Management voting power is not a core preference feature.

🧠 Memory Trick

"Preference Gets Priority, Not Power"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Preference Shares – Page X

18 If Company Y goes into liquidation and its assets are just enough to pay outside creditors and preference shareholders, what happens to the equity shareholders?

A They get fully compensated by the government.

B They get priority over creditors for their capital.

C They get the preference dividend.

D They receive nothing as they have a residual claim.

💡 Short Explanation

Equity shareholders are residual claimants. Prior claims are settled first. No surplus means no payment.

✅ Correct Answer Explanation

Equity shareholders receive payment only after creditors and preference shareholders are fully paid. Since no surplus remains, equity shareholders receive nothing. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Government compensation does not apply.
Option B → Creditors have higher priority.
Option C → Preference dividend belongs to preference shareholders.

🎯 Strategy

Used

Case-Based Reasoning

Application:

Winding-up payment priority was applied.

Final Logic:

Residual claim means no payment if surplus absent.

🧠 Memory Trick

"Equity Gets the Last Balance"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Equity Shares – Page X

19 Assertion (A): Preference shares must be paid their fixed dividend before any dividend is paid to equity shares.
Reason (R): Preference shares inherently carry normal voting rights.

A Both A and R are true and R explains A

B Both A and R are true, but R does not explain A

C A is true, but R is false

D A is false, but R is true

💡 Short Explanation

Preference shares enjoy dividend priority. Normal voting rights belong to equity shareholders. Reason statement is incorrect.

✅ Correct Answer Explanation

Assertion is true because preference shareholders receive dividend before equity shareholders. Reason is false because preference shares generally do not carry normal voting rights. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Reason is false.
Option B → Both statements are not true.
Option D → Assertion is correct.

🎯 Strategy

Used

Assertion–Reason Analysis

Application:

Dividend priority and voting rights were distinguished.

Final Logic:

Dividend priority does not arise from voting rights.

🧠 Memory Trick

"Priority in Dividend, Not Voting"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Dividend Priority – Page X

20 The preferential right to repayment of capital for a preference share is specifically enforceable:

A On the winding up of the company

B At the end of every financial year

C Whenever the shareholder demands it

D Only if the company makes a loss

💡 Short Explanation

Capital repayment priority arises during winding up. Preference shareholders are paid before equity shareholders. Right becomes enforceable at closure.

✅ Correct Answer Explanation

The preferential right to repayment of capital operates specifically during winding up of the company. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Financial year-end is unrelated.
Option C → Shareholders cannot demand repayment anytime.
Option D → Loss-making condition is irrelevant.

🎯 Strategy

Used

Legal Recall

Application:

Preference repayment rights were identified.

Final Logic:

Repayment priority applies on winding up.

🧠 Memory Trick

"Preference Paid First at Closure"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Capital Repayment – Page X

CUET UG Accountancy Booster Test 2 Types of Shares

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