CUET UG Accountancy Booster Test 2 Issue and Accounting of Shares -

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CUET UG Accountancy Booster Test 1 Issue and Accounting of Shares

⏱️ 30 Minutes

❓ 20 Questions

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

CUET UG Accountancy Booster Test 1 Issue and Accounting of Shares

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QUESTION 1 OF 20

Which of the following best describes the legal nature of a prospectus?

Answer Review

1 Which of the following best describes the legal nature of a prospectus?

A It is a binding contract between two companies.

B It is a document solely for internal audit purposes.

C It is the company's certificate of registration.

D It is an invitation to the public stating the company needs funds for business.

💡 Short Explanation

Prospectus invites public investment. It seeks funds from investors. It is not a contract or registration certificate.

✅ Correct Answer Explanation

A prospectus is a formal invitation issued by a company requesting the public to subscribe to its shares or debentures for raising capital. Therefore, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Prospectus is not a binding contract.
Option B → It is not meant only for internal audit.
Option C → Certificate of incorporation is issued separately.

🎯 Strategy

Used

Definition Matching

Application:

The legal role of a prospectus was identified.

Final Logic:

Prospectus = Invitation to invest.

🧠 Memory Trick

"Prospectus Promotes Investment"

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

2 Assertion (A): Investors intending to subscribe must send application money along with the application form.
Reason (R): The application money represents a financial commitment and first instalment towards the share capital.

A A is true, but R is false

B Both A and R are true, and R explains A

C A is false, but R is true

D Both A and R are false

💡 Short Explanation

Application money accompanies application form. It shows financial commitment. Reason correctly explains assertion.

✅ Correct Answer Explanation

Investors must submit application money along with the application form because it represents the first instalment toward share capital and confirms genuine subscription intent. Thus: Assertion is true. Reason is true. Reason correctly explains Assertion. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Reason is also true.
Option C → Assertion is true.
Option D → Both statements are valid.

🎯 Strategy

Used

Assertion–Reason Analysis

Application:

The purpose of application money was logically connected.

Final Logic:

Application money proves commitment.

🧠 Memory Trick

"Application Money = Commitment"

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

3 Arrange the share capital stages from the accounting viewpoint in chronological flow:
1. Issued Capital
2. Subscribed Capital
3. Called-up Capital

A 2, 1, 3

B 3, 2, 1

C 1, 2, 3

D 2, 3, 1

💡 Short Explanation

Shares are issued first. Investors subscribe next. Company calls money afterward.

✅ Correct Answer Explanation

Chronological sequence: 1. Issued Capital → shares offered to public 2. Subscribed Capital → shares accepted by investors 3. Called-up Capital → amount demanded from shareholders Thus, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Subscription cannot occur before issue.
Option B → Called-up capital comes later.
Option D → Issued capital must appear first.

🎯 Strategy

Used

Sequential Logic

Application:

Stages of capital formation were arranged chronologically.

Final Logic:

Issue → Subscription → Call.

🧠 Memory Trick

"Issue, Subscribe, Call"

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

4 Match the following:

List 1	List 2
1. Letter of Allotment	a. Sent to successful applicants
2. Letter of Regret	b. Sent to rejected applicants
3. Prospectus	c. Invitation to the public
4. Share	d. Fractional part of share capital

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

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

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

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

💡 Short Explanation

Allotment letters go to successful applicants. Regret letters go to rejected applicants. Prospectus invites public subscription.

✅ Correct Answer Explanation

Correct matching: 1. Letter of Allotment → d. Sent to successful applicants 2. Letter of Regret → c. Sent to rejected applicants 3. Prospectus → b. Invitation to the public 4. Share → a. Fractional part of share capital Thus, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Prospectus and share incorrectly matched.
Option C → Multiple mismatches occur.
Option D → Allotment and regret letters reversed.

🎯 Strategy

Used

Option Grouping

Application:

Each document was matched with its purpose.

Final Logic:

Only Option A correctly matches all items.

🧠 Memory Trick

"Allotment = Success, Regret = Rejection"

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

📄 Passage

The company has to get minimum subscription within 120 days from the date of the issue of the prospectus. It is to be noted that 'minimum subscription' of capital cannot be less than 90% of the issued amount according to SEBI Guidelines. If the company fails to receive the same, the company cannot proceed for the allotment of shares. In such cases, the entire subscription amount received should be returned within 130 days. If a delay occurs beyond 8 days from the closure, the company is liable to pay interest.

As per the passage, within how many days from the issue of the prospectus must the company receive the minimum subscription?

A 30 days

B 60 days

C 90 days

D 120 days

💡 Short Explanation

Minimum subscription has time limit. Company must receive it within 120 days. Otherwise allotment cannot proceed.

✅ Correct Answer Explanation

The passage directly states that minimum subscription must be received within 120 days from the issue of the prospectus. Therefore, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Too short.
Option B → Incorrect statutory limit.
Option C → Refers to percentage, not time period.

🎯 Strategy

Used

Passage-Based Identification

Application:

The required period was directly identified from the passage.

Final Logic:

Minimum subscription deadline = 120 days.

🧠 Memory Trick

"120 Days to Subscribe"

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

📄 Passage

If there is a delay in refunding the application money beyond 8 days from the closure, what penalty applies?

A The company is liable to pay interest

B The company's directors are imprisoned

C The shares are automatically allotted

D The government confiscates the money

💡 Short Explanation

Delay in refund creates liability. Interest becomes payable. Investor protection rule applies.

✅ Correct Answer Explanation

The passage clearly states that if refund is delayed beyond 8 days from closure, the company becomes liable to pay interest. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Imprisonment is not mentioned.
Option C → Shares are not automatically allotted.
Option D → Government confiscation is incorrect.

🎯 Strategy

Used

Passage-Based Identification

Application:

Penalty provision was directly identified.

Final Logic:

Delay in refund = Interest liability.

🧠 Memory Trick

"Late Refund = Interest"

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

7 A company issues shares of Rs. 10 each at par. It collects Rs. 2 on application, Rs. 3 on allotment, and Rs. 2 on the first call. What is the remaining balance due on the final call?

A Rs. 2

B Rs. 3

C Rs. 4

D Rs. 5

💡 Short Explanation

Total face value = Rs. 10. Amount already collected = Rs. 7. Remaining balance = Rs. 3.

✅ Correct Answer Explanation

Total collected before final call: 2 + 3 + 2 = 7 Final call due: 10 - 7 = 3 Thus, remaining balance due on final call = Rs. 3. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Understated balance.
Option C → Incorrect subtraction.
Option D → Ignores earlier payments.

🎯 Strategy

Used

Substitution

Application:

Amounts collected were deducted from face value.

Final Logic:

Remaining balance = Rs. 3.

🧠 Memory Trick

"Total Minus Paid"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Issue at Par – Page X

8 Securities Premium Reserve can be legally utilized for specific purposes. Which of the following is an INCORRECT use of this reserve?

A To issue fully paid bonus shares

B To write-off preliminary expenses

C To pay regular cash dividends to shareholders

D To provide for the premium payable on redemption of debentures

💡 Short Explanation

Securities premium has restricted uses. Cash dividends cannot be paid from it. Other listed uses are permitted.

✅ Correct Answer Explanation

Securities Premium Reserve may be used for: issuing bonus shares, writing off preliminary expenses, premium on redemption. However, it cannot be used to pay regular cash dividends. Thus, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Legally permitted use.
Option B → Allowed under company law.
Option D → Also a valid use.

🎯 Strategy

Used

Conceptual Elimination

Application:

Permitted uses of securities premium were evaluated.

Final Logic:

Cash dividends cannot be paid from securities premium.

🧠 Memory Trick

"Premium Reserve ≠ Dividend Fund"

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

9 Sunrise Ltd. issued 20,000 shares of Rs. 10 each. It received applications for 25,000 shares. If the application money is Rs. 3 per share, what is the total application money received in the bank?

A Rs. 75,000

B Rs. 60,000

C Rs. 15,000

D Rs. 1,00,000

💡 Short Explanation

Applications received = 25,000 shares. Application money = Rs. 3 per share. Total receipt = Rs. 75,000.

✅ Correct Answer Explanation

Application money received: 25000 × 3 = 75000 Thus, total application money received in bank = Rs. 75,000. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Based on 20,000 shares only.
Option C → Incorrect multiplication.
Option D → Excessively high calculation.

🎯 Strategy

Used

Substitution

Application:

Total applications multiplied by application money per share.

Final Logic:

25,000 × 3 = Rs. 75,000.

🧠 Memory Trick

"Applications × Application Money"

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

10 Regarding Applications Supported by Blocked Amount (ASBA), which statements are correct?
I. The applicant's bank account is debited immediately upon application.
II. A lien is marked on the application money, blocking it until allotment.

A Only I is correct

B Only II is correct

C Both I and II are correct

D Neither I nor II is correct

💡 Short Explanation

ASBA blocks funds, not immediate debit. Bank places a lien on the amount. Debit occurs only after allotment.

✅ Correct Answer Explanation

Under ASBA: the bank account is not debited immediately, instead, the application amount is blocked through a lien until allotment is finalized. Thus: Statement I is false. Statement II is true. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Immediate debit does not occur.
Option C → Statement I is incorrect.
Option D → Statement II is correct.

🎯 Strategy

Used

Statement Verification

Application:

ASBA mechanism was analyzed carefully.

Final Logic:

ASBA blocks funds without immediate debit.

🧠 Memory Trick

"ASBA = Amount Blocked, Not Debited"

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

11 Arrange the accounting sequence related to issue of shares at par:
1. Receipt of Application Money
2. Transfer to Share Capital Account
3. Allotment of Shares

A 1, 3, 2

B 2, 1, 3

C 3, 2, 1

D 1, 2, 3

💡 Short Explanation

Application money is received first. Shares are allotted afterward. Amount is then transferred to share capital.

✅ Correct Answer Explanation

Correct sequence: 1. Application money received 2. Shares allotted 3. Application money transferred to Share Capital Account Thus, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Transfer cannot occur before receipt.
Option C → Allotment cannot occur first.
Option D → Transfer occurs after allotment.

🎯 Strategy

Used

Sequential Logic

Application:

The chronological accounting flow was arranged properly.

Final Logic:

Receipt → Allotment → Transfer.

🧠 Memory Trick

"Receive, Allot, Transfer"

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

12 When shares are issued at a price higher than face value, the excess amount received is credited to:

A General Reserve Account

B Securities Premium Account

C Share Application Account

D Capital Reserve Account

💡 Short Explanation

Excess over face value is premium. Premium has separate accounting treatment. It is credited to Securities Premium Account.

✅ Correct Answer Explanation

When shares are issued above nominal value, the excess amount is called securities premium and is credited to Securities Premium Account. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → General reserve is unrelated.
Option C → Application account records application money only.
Option D → Capital reserve arises from capital profits.

🎯 Strategy

Used

Definition Matching

Application:

The treatment of share premium was identified.

Final Logic:

Excess issue price = Securities Premium.

🧠 Memory Trick

"Extra Price = Premium"

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

13 A company issues shares of Rs. 10 each at a premium of Rs. 2. If 50,000 shares are issued, calculate the total Securities Premium collected.

A Rs. 1,00,000

B Rs. 50,000

C Rs. 6,00,000

D Rs. 5,00,000

💡 Short Explanation

Premium per share = Rs. 2. Shares issued = 50,000. Total premium = Rs. 1,00,000.

✅ Correct Answer Explanation

Total Securities Premium: 50000 \times 2 = 100000 Thus, Securities Premium collected = Rs. 1,00,000. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Half the correct amount.
Option C → Includes face value incorrectly.
Option D → Incorrect multiplication.

🎯 Strategy

Used

Substitution

Application:

Number of shares multiplied by premium per share.

Final Logic:

50,000 × 2 = Rs. 1,00,000.

🧠 Memory Trick

"Shares × Premium"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Securities Premium Calculation – Page X

14 Which of the following is NOT a legally permitted use of Securities Premium Reserve?

A Writing off preliminary expenses

B Issuing bonus shares

C Redemption premium on debentures

D Distribution of normal trading profits as dividend

💡 Short Explanation

Securities premium has restricted uses. Regular dividend payment is prohibited. Other listed uses are permitted.

✅ Correct Answer Explanation

Securities Premium Reserve cannot be used for payment of ordinary dividends. However, it can legally be used for: bonus shares, preliminary expenses, redemption premium. Thus, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Valid use.
Option B → Permitted use.
Option C → Legally allowed.

🎯 Strategy

Used

Conceptual Elimination

Application:

Permitted and prohibited uses were differentiated.

Final Logic:

Premium reserve cannot fund ordinary dividends.

🧠 Memory Trick

"Premium Reserve ≠ Dividend Reserve"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Uses of Securities Premium – Page X

15 If a company issues shares at a discount, which of the following statements is correct according to modern Companies Act provisions?

A Shares can freely be issued at any discount.

B Issue of shares at discount is generally prohibited except in specific cases.

C Shares at discount are mandatory for public companies.

D Discount on issue is treated as revenue profit.

💡 Short Explanation

Modern company law restricts discount issue. General issue at discount is prohibited. Exceptions may exist in limited cases.

✅ Correct Answer Explanation

Under modern Companies Act provisions, issue of shares at discount is generally prohibited except under specific permitted situations. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Contradicts legal provisions.
Option C → No such mandatory rule exists.
Option D → Discount represents capital loss.

🎯 Strategy

Used

Legal Recall

Application:

Modern statutory restrictions were identified.

Final Logic:

Discount issue is largely prohibited.

🧠 Memory Trick

"Discount Issue? Mostly Not Allowed"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Issue at Discount – Page X

16 Assertion (A): Calls in Advance are treated as a liability for the company.
Reason (R): The company has received money before it becomes due and owes adjustment in future.

A Both A and R are true and R explains A

B A is true, but R is false

C A is false, but R is true

D Both A and R are false

💡 Short Explanation

Advance money creates obligation. Adjustment is pending for future calls. Liability treatment is justified.

✅ Correct Answer Explanation

Calls in Advance are liabilities because the company has received money before due date and must adjust it against future calls. Thus: Assertion is true. Reason is true. Reason correctly explains Assertion. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Reason is also correct.
Option C → Assertion is true.
Option D → Both statements are valid.

🎯 Strategy

Used

Assertion–Reason Analysis

Application:

The accounting nature of advance receipts was examined.

Final Logic:

Advance receipts create liability.

🧠 Memory Trick

"Advance Money = Future Obligation"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Calls in Advance – Page X

17 The maximum interest payable on Calls in Advance under Table F, when Articles are silent, is:

A 6% p.a.

B 8% p.a.

C 10% p.a.

D 12% p.a.

💡 Short Explanation

Table F prescribes maximum limit. Calls in advance carry higher rate. Maximum allowed is 12%.

✅ Correct Answer Explanation

When Articles are silent, Table F allows interest on Calls in Advance up to 12% per annum. Therefore, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Incorrect statutory rate.
Option B → Not prescribed.
Option C → Applies to calls in arrears.

🎯 Strategy

Used

Direct Recall

Application:

The statutory interest limit was remembered.

Final Logic:

Calls in Advance interest = 12%.

🧠 Memory Trick

"Advance = 12%"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Interest on Calls in Advance – Page X

18 Which accounting entry is correct when application money is received?

A Share Capital A/c Dr. To Bank A/c

B Bank A/c Dr. To Share Application A/c

C Share Application A/c Dr. To Bank A/c

D Calls in Arrears A/c Dr. To Bank A/c

💡 Short Explanation

Bank balance increases on receipt. Application account is credited. Standard journal entry applies.

✅ Correct Answer Explanation

Correct journal entry: Bank A/c Dr. To Share Application A/c Thus, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Reverse treatment.
Option C → Debit-credit order incorrect.
Option D → Calls in arrears unrelated.

🎯 Strategy

Used

Journal Entry Logic

Application:

Accounting rules for money receipt were applied.

Final Logic:

Cash received increases Bank Account.

🧠 Memory Trick

"Money Received → Bank Dr."

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

19 Match the following:

List 1	List 2
1. Prospectus	a. Invitation to the public
2. ASBA	b. Application money blocked in bank
3. Securities Premium	c. Excess amount over nominal value
4. Calls in Advance	d. Liability until adjusted

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

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

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

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

💡 Short Explanation

Prospectus invites investment. ASBA blocks bank amount. Securities premium is excess over face value.

✅ Correct Answer Explanation

Correct matching: 1. Prospectus → b. Invitation to public 2. ASBA → d. Application money blocked in bank 3. Securities Premium → a. Excess amount over nominal value 4. Calls in Advance → c. Liability until adjusted Thus, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Prospectus and ASBA mismatched.
Option C → Incorrect pairings.
Option D → Multiple mismatches occur.

🎯 Strategy

Used

Option Grouping

Application:

Each accounting concept was linked correctly.

Final Logic:

Only Option A matches all accurately.

🧠 Memory Trick

"Prospectus-Public, ASBA-Blocked"

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

20 A company issues 1,00,000 shares of Rs. 10 each payable as Rs. 3 on application, Rs. 4 on allotment and balance on final call. Calculate the amount payable on final call per share.

A Rs. 2

B Rs. 3

C Rs. 4

D Rs. 5

💡 Short Explanation

Total face value = Rs. 10. Application and allotment total = Rs. 7. Remaining amount = Rs. 3.

✅ Correct Answer Explanation

Amount already payable before final call: 3 + 4 = 7 Final call amount: 10 - 7 = 3 Thus, amount payable on final call = Rs. 3 per share. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Understated balance.
Option C → Incorrect subtraction.
Option D → Ignores previous instalments.

🎯 Strategy

Used

Substitution

Application:

Previous instalments deducted from face value.

Final Logic:

Balance payable = Rs. 3.

🧠 Memory Trick

"Face Value Minus Paid Amounts"

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

CUET UG Accountancy Booster Test 1 Issue and Accounting of Shares

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