CUET UG Accountancy Booster Test 2 Types of Shares -

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CUET UG Accountancy Booster Test 1 Types of Shares

⏱️ 30 Minutes

❓ 20 Questions

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

CUET UG Accountancy Booster Test 1 Types of Shares

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QUESTION 1 OF 20

📄 Passage

According to Section 43 of The Companies Act, 2013, a preference share is one, which fulfils the following conditions:

(a) That it carries a preferential right to dividend to be paid either as a fixed amount payable to preference shareholders or an amount calculated by a fixed rate of the nominal value of each share before any dividend is paid to the equity shareholders.
(b) That with respect to capital it carries or will carry, on the winding up of the company, the preferential right to the repayment of capital before anything is paid to equity shareholders.
According to the passage, the preferential right to dividend can be paid as:

Answer Review

📄 Passage

According to Section 43 of The Companies Act, 2013, a preference share is one, which fulfils the following conditions:

A Only a fixed amount

B A residual amount after equity dividend

C An amount equal to the company's retained earnings

D Either a fixed amount or an amount calculated by a fixed rate of the nominal value

💡 Short Explanation

Preference dividend has priority. Dividend may be fixed or rate-based. Payment occurs before equity dividend.

✅ Correct Answer Explanation

The passage clearly states that preference shareholders may receive dividend: as a fixed amount, or at a fixed rate on nominal value. Therefore, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Dividend is not restricted only to fixed amount.
Option B → Residual amount belongs to equity shareholders.
Option C → Retained earnings are unrelated.

🎯 Strategy

Used

Passage-Based Identification

Application:

The answer was directly extracted from the passage.

Final Logic:

Preference dividend may be fixed or rate-based.

🧠 Memory Trick

"Preference = Priority + Fixed Return"

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

📄 Passage

According to Section 43 of The Companies Act, 2013, a preference share is one, which fulfils the following conditions:

(a) That it carries a preferential right to dividend to be paid either as a fixed amount payable to preference shareholders or an amount calculated by a fixed rate of the nominal value of each share before any dividend is paid to the equity shareholders.
(b) That with respect to capital it carries or will carry, on the winding up of the company, the preferential right to the repayment of capital before anything is paid to equity shareholders.
When does the preferential right to the repayment of capital come into effect according to the passage?

A On the winding up of the company

B Annually after the Annual General Meeting

C When the company issues a new prospectus

D During the payment of the first call money

💡 Short Explanation

Repayment priority arises at closure. Winding up triggers repayment rights. Preference shareholders are paid first.

✅ Correct Answer Explanation

The passage explicitly states that preferential repayment of capital operates during winding up of the company. Thus, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → AGM relates to meetings, not winding up.
Option C → Prospectus issue is unrelated.
Option D → Call money has no connection.

🎯 Strategy

Used

Contextual Matching

Application:

The phrase "on the winding up" directly identifies the answer.

Final Logic:

Capital repayment priority applies during winding up.

🧠 Memory Trick

"Preference Paid First at Closure"

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

3 If a company has insufficient profits in Year 1, how are cumulative preference shares treated in Year 2 regarding dividends?

A They lose their right to the Year 1 dividend permanently.

B The unpaid dividend from Year 1 must be paid in Year 2 before equity dividends.

C They receive equity shares in lieu of Year 1 dividends.

D They receive interest on the unpaid dividend from Year 1.

💡 Short Explanation

Unpaid dividends accumulate. Arrears must be cleared first. Equity dividend comes afterward.

✅ Correct Answer Explanation

Cumulative preference shares carry forward unpaid dividends to future years. Hence, unpaid dividend from Year 1 must be paid before equity shareholders receive dividend in Year 2. Therefore, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Cumulative rights do not lapse.
Option C → No compulsory equity conversion exists.
Option D → Interest is generally not payable automatically.

🎯 Strategy

Used

Conceptual Understanding

Application:

The accumulation feature of cumulative shares was applied.

Final Logic:

Unpaid dividends accumulate until paid.

🧠 Memory Trick

"Cumulative = Carry Forward"

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

4 A company declares no dividend for 2024. In 2025, it earns high profits. Shareholders of non-cumulative preference shares claim dividends for both 2024 and 2025. Are they justified?

A Yes, they always have a fixed return priority.

B Yes, because 2025 profits are sufficient to cover 2024.

C No, because their right to the 2024 dividend lapsed when it was not declared.

D No, because only equity shareholders get arrears.

💡 Short Explanation

Non-cumulative dividend does not accumulate. Unpaid dividend lapses permanently. Only current-year claim survives.

✅ Correct Answer Explanation

Non-cumulative preference shareholders lose their right to dividend if it is not declared in that year. Therefore, they cannot claim the 2024 dividend in 2025. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Priority exists only for declared dividend.
Option B → Profits do not revive lapsed rights.
Option D → Equity shareholders do not receive arrears.

🎯 Strategy

Used

Case-Based Reasoning

Application:

The lapse feature of non-cumulative shares was applied.

Final Logic:

Non-cumulative dividend rights lapse yearly.

🧠 Memory Trick

"Non-Cumulative = No Carry Forward"

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

5 A company has Rs. 50,000 surplus profits left after paying fixed preference dividend and a standard equity dividend. If the 10,000 participating preference shares and 40,000 equity shares share the surplus equally per share, how much extra dividend does a single participating preference share get?

A Rs. 1

B Rs. 5

C Rs. 2

D Rs. 10

💡 Short Explanation

Total shares sharing surplus = 50,000. Surplus distributed equally. Per-share amount equals Re. 1.

✅ Correct Answer Explanation

Total participating shares: 10000 + 40000 = 50000 Extra dividend per share: 50000 ÷ 50000 = 1 Thus, each participating preference share receives Re. 1 extra dividend. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Incorrect surplus allocation.
Option C → Miscalculation.
Option D → Excessively high distribution.

🎯 Strategy

Used

Substitution

Application:

Surplus profit divided equally among all participating shares.

Final Logic:

Extra dividend per share = Rs. 1.

🧠 Memory Trick

"Equal Sharing = Total Profit ÷ Total Shares"

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

6 Select the correct statement about non-participating preference shares:
(I) They receive a fixed rate of dividend.
(II) They share in the surplus profits left after paying equity dividend.

A Only II

B Both I and II

C Only I

D Neither I nor II

💡 Short Explanation

Fixed dividend is received. No surplus participation exists. Statement II is incorrect.

✅ Correct Answer Explanation

Non-participating preference shares receive only their fixed dividend and do not participate in surplus profits. Thus: Statement I is true. Statement II is false. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Statement I is true.
Option B → Statement II is false.
Option D → Statement I is valid.

🎯 Strategy

Used

Statement Verification

Application:

Participation rights were examined carefully.

Final Logic:

Non-participating shares do not share surplus.

🧠 Memory Trick

"Non-Participating = No Extra Profit"

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

7 Match the share type with its attribute:

List 1	List 2
1. Redeemable Preference	a. Repaid after a specific term
2. Equity	b. Residual risk bearer
3. Cumulative Preference	c. Arrears accumulate
4. Participating Preference	d. Shares in surplus

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

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

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

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

💡 Short Explanation

Redeemable shares are repayable. Equity bears residual risk. Cumulative shares carry arrears.

✅ Correct Answer Explanation

Correct matching: 1. Redeemable Preference → b. Repaid after specific term 2. Equity → d. Residual risk bearer 3. Cumulative Preference → a. Arrears accumulate 4. Participating Preference → c. Shares in surplus Thus, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Equity incorrectly matched.
Option B → Multiple mismatches occur.
Option C → Redeemable shares incorrectly matched.

🎯 Strategy

Used

Option Grouping

Application:

Each share type was linked with its defining feature.

Final Logic:

Only Option D matches correctly.

🧠 Memory Trick

"Redeem-Repaid, Equity-Risk"

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

8 Shares which are not liable to be refunded during the lifetime of the company, but only at the time of winding up, are fundamentally treated as:

A Redeemable shares

B Irredeemable shares / Equity shares

C Debentures

D Reserve Capital

💡 Short Explanation

Equity shares are not repaid normally. Repayment occurs at winding up. Such shares are irredeemable.

✅ Correct Answer Explanation

Equity shares are generally irredeemable during the company's lifetime and are repaid only during winding up. Thus, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Redeemable shares are repayable earlier.
Option C → Debentures are borrowings.
Option D → Reserve capital is unrelated.

🎯 Strategy

Used

Definition Matching

Application:

Irredeemable nature of equity shares was identified.

Final Logic:

Equity shares remain till winding up.

🧠 Memory Trick

"Equity Lives with Company"

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

9 Arrange the sequence of distributing profits:
(1) Equity Dividend
(2) Preference Dividend
(3) Interest on Outside Debt

A 1, 2, 3

B 2, 1, 3

C 3, 2, 1

D 3, 1, 2

💡 Short Explanation

Outside creditors are paid first. Preference shareholders receive priority next. Equity shareholders receive residual profits.

✅ Correct Answer Explanation

Profit distribution follows this order: 1. Interest on outside debt 2. Preference dividend 3. Equity dividend Thus, the correct sequence is: 3 → 2 → 1 Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Equity shareholders cannot receive profits first.
Option B → Outside debt must be settled before dividends.
Option D → Preference shareholders have priority over equity shareholders.

🎯 Strategy

Used

Sequential Logic

Application:

The hierarchy of claims on profits was arranged correctly.

Final Logic:

Creditors → Preference → Equity

🧠 Memory Trick

"Debt First, Equity Last"

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

10 Assertion (A): The dividend on equity shares remains fixed every year.
Reason (R): Equity shareholders are entitled to the distributable profits after satisfying preference dividend rights.

A Both A and R are true

B Both A and R are false

C A is true, but R is false

D A is false, but R is true

💡 Short Explanation

Equity dividend is variable. Equity shareholders receive residual profits. Reason correctly explains variability.

✅ Correct Answer Explanation

Assertion is false because equity dividend is not fixed and varies according to profits. Reason is true because equity shareholders receive profits only after preference dividend obligations are satisfied. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Assertion is false.
Option B → Reason is true.
Option C → Reason is not false.

🎯 Strategy

Used

Assertion–Reason Analysis

Application:

Dividend nature of equity shares was examined.

Final Logic:

Residual claim causes variable dividend.

🧠 Memory Trick

"Equity = Variable Return"

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

11 Normal voting rights in an equity share imply that the shareholder can:

A Vote on resolutions at the company's general meetings.

B Claim a fixed 10% dividend before voting.

C Convert their shares to debentures without voting.

D Demand capital repayment at any time.

💡 Short Explanation

Equity shareholders possess voting rights. Voting occurs in general meetings. Management decisions are influenced there.

✅ Correct Answer Explanation

Normal voting rights allow equity shareholders to vote on company resolutions during general meetings. Therefore, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Fixed dividend belongs to preference shares.
Option C → Conversion is not an automatic voting right.
Option D → Equity capital is not repayable on demand.

🎯 Strategy

Used

Conceptual Identification

Application:

Voting rights were linked with shareholder participation.

Final Logic:

Equity shareholders vote in meetings.

🧠 Memory Trick

"Equity Votes"

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

12 The issue of equity shares with differential rights is subject to conditions prescribed in:

A The Partnership Act

B The Articles of Association of the company

C The Prospectus rules only

D The Reserve Bank of India guidelines

💡 Short Explanation

Differential rights require internal authorization. Articles prescribe conditions. Company structure rules are contained there.

✅ Correct Answer Explanation

The Articles of Association prescribe conditions regarding issue of equity shares with differential rights. Thus, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Partnership Act is unrelated.
Option C → Prospectus alone does not prescribe conditions.
Option D → RBI guidelines do not govern this matter.

🎯 Strategy

Used

Legal Recall

Application:

Internal company governance rules were identified.

Final Logic:

AOA governs differential rights.

🧠 Memory Trick

"AOA Controls Share Rights"

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

13 In a scenario where the company's distributable profit is Rs. P, and the fixed preference dividend is Rs. F. The formula for the maximum dividend pool available for equity shares (bearing the highest risk) is:

A P + F

B F - P

C P / F

D P - F

💡 Short Explanation

Preference dividend is deducted first. Equity shareholders get residual profit. Remaining amount forms equity dividend pool.

✅ Correct Answer Explanation

Equity shareholders receive profits only after preference dividend is paid. Formula: Equity Dividend Pool = P – F Thus, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Preference dividend is not added.
Option B → Incorrect order.
Option C → Division is irrelevant.

🎯 Strategy

Used

Formula Identification

Application:

Residual profit formula was directly applied.

Final Logic:

Equity shareholders receive remaining profit.

🧠 Memory Trick

"Profit Minus Preference"

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

14 A company issues 8% Preference Shares of Rs. 100 each. The "8%" signifies what risk-return characteristic?

A A fixed dividend return of Rs. 8 per share annually, indicating lower risk.

B A fixed premium of Rs. 8 on redemption.

C An 8% voting right in management.

D A variable return capped at 8%.

💡 Short Explanation

Preference shares carry fixed return. 8% applies on face value. Dividend equals Rs. 8 per Rs. 100 share.

✅ Correct Answer Explanation

Dividend calculation: 8% × 100 = 8 Thus, each preference share earns fixed dividend of Rs. 8 annually, reflecting lower risk. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Percentage relates to dividend, not redemption premium.
Option C → Voting rights are unrelated.
Option D → Preference dividend is fixed, not variable.

🎯 Strategy

Used

Numerical Interpretation

Application:

Percentage dividend was calculated on nominal value.

Final Logic:

8% of Rs. 100 = Rs. 8 fixed dividend.

🧠 Memory Trick

"Preference = Fixed Return"

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

15 Which statement best reflects the ownership nature of shareholders?

A They manage the company's daily affairs directly.

B They are creditors to the company.

C They are the real owners who elect a Board of Directors to manage affairs.

D They own the physical assets of the company directly.

💡 Short Explanation

Shareholders are company owners. Directors manage on their behalf. Daily management is delegated.

✅ Correct Answer Explanation

Shareholders are the real owners of the company and elect directors to manage company affairs. Thus, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Shareholders generally do not manage daily affairs.
Option B → Creditors lend money, not own the company.
Option D → Assets belong to the company as separate legal entity.

🎯 Strategy

Used

Conceptual Understanding

Application:

Ownership and management roles were differentiated.

Final Logic:

Owners elect directors for management.

🧠 Memory Trick

"Owners Elect Board"

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

16 A company has Rs. 3,00,000 profit. It must pay 10% dividend on Rs. 5,00,000 Preference Share Capital. The remaining profit is distributed to 25,000 Equity Shares. What is the profit shared per equity share?

A Rs. 12

B Rs. 10

C Rs. 8

D Rs. 5

💡 Short Explanation

Preference dividend is paid first. Remaining profit goes to equity shareholders. Profit is divided equally among equity shares.

✅ Correct Answer Explanation

Preference dividend: 10% × 500000 = 50000 Remaining profit: 300000 − 50000 = 250000 Profit per equity share: 250000 ÷ 25000 = 10 Thus, each equity share receives Rs. 10. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Incorrect division.
Option C → Preference dividend not deducted properly.
Option D → Understated calculation.

🎯 Strategy

Used

Substitution

Application:

Preference dividend was deducted before dividing residual profit.

Final Logic:

Residual profit ÷ Equity shares = Rs. 10.

🧠 Memory Trick

"First Preference, Then Equity"

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

17 As per Section 43 of the Companies Act, 2013, which statements are true?
(I) Preference shares have priority in dividend.
(II) Equity shares do not enjoy preferential rights.

A Only I is true

B Only II is true

C Neither is true

D Both I and II are true

💡 Short Explanation

Preference shares carry preferential rights. Equity shares are residual claimants. Both statements are correct.

✅ Correct Answer Explanation

Preference shares receive dividend priority, while equity shares do not enjoy preferential rights. Thus: Statement I is true. Statement II is true. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Statement II is also true.
Option B → Statement I is also true.
Option C → Both statements are correct.

🎯 Strategy

Used

Statement Verification

Application:

The legal distinction between share classes was checked.

Final Logic:

Preference enjoys priority; equity does not.

🧠 Memory Trick

"Preference First, Equity Residual"

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

18 Preference shares generally do NOT carry which of the following rights?

A Preferential right to a fixed dividend

B Preferential right to repayment of capital

C Normal voting rights like equity shares

D Right to participate in surplus (if specified)

💡 Short Explanation

Preference shareholders have limited voting rights. Equity shareholders possess normal voting rights. Preference rights focus on dividend and capital priority.

✅ Correct Answer Explanation

Preference shareholders generally do not enjoy normal voting rights like equity shareholders. Thus, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Preference shares carry dividend priority.
Option B → They enjoy repayment priority.
Option D → Participating preference shares may enjoy surplus rights.

🎯 Strategy

Used

Conceptual Elimination

Application:

Rights unique to equity shares were identified.

Final Logic:

Normal voting rights belong mainly to equity shareholders.

🧠 Memory Trick

"Preference Gets Priority, Not Power"

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

19 The classes of shares into which the company's capital is divided, along with their respective rights, are prescribed by:

A The Board of Directors' oral agreement

B The Articles of Association

C The Registrar of Companies directly

D The Shareholders' personal contracts

💡 Short Explanation

Share rights are governed internally. AOA prescribes classes and rights. Company constitution defines them.

✅ Correct Answer Explanation

The Articles of Association prescribe: classes of shares, rights, obligations, and related conditions. Therefore, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Oral agreements have no governing authority.
Option C → ROC does not prescribe internal share classes.
Option D → Personal contracts cannot define company constitution.

🎯 Strategy

Used

Definition Recall

Application:

Internal governance document was identified.

Final Logic:

AOA governs share rights.

🧠 Memory Trick

"AOA Defines Share Rights"

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

20 What is another term commonly used in the text for "Equity Shares"?

A Ordinary shares

B Guaranteed shares

C Priority shares

D Deferred shares

💡 Short Explanation

Equity shares are also called ordinary shares. They are residual ownership shares. No preferential rights exist.

✅ Correct Answer Explanation

Equity shares are commonly referred to as Ordinary Shares because they do not carry preferential rights like preference shares. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Not a common synonym for equity shares.
Option C → Priority shares imply preference shares.
Option D → Deferred shares are distinct categories.

🎯 Strategy

Used

Terminology Recall

Application:

Alternative terminology for equity shares was identified.

Final Logic:

Equity shares = Ordinary shares.

🧠 Memory Trick

"Ordinary = Equity"

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

CUET UG Accountancy Booster Test 1 Types of Shares

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