CUET UG Accountancy Booster Test 3 Issue and Accounting of Shares -

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

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QUESTION 1 OF 20

Evaluate the following statements regarding the issue process:
I. The prospectus contains the manner in which money is to be collected from prospective investors.
II. Under the ASBA process, the application money physically leaves the applicant's account the moment the application is submitted.

Answer Review

1 Evaluate the following statements regarding the issue process:
I. The prospectus contains the manner in which money is to be collected from prospective investors.
II. Under the ASBA process, the application money physically leaves the applicant's account the moment the application is submitted.

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

Prospectus explains collection procedure. ASBA blocks money but does not immediately debit it. Therefore only Statement I is correct.

✅ Correct Answer Explanation

Statement I is correct because the prospectus specifies the process of collecting money from investors. Statement II is false because under ASBA, the amount is only blocked in the applicant's account and not immediately debited. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Statement I is true.
Option C → Statement II is incorrect.
Option D → Statement I is valid.

🎯 Strategy

Used

Statement Verification

Application:

ASBA mechanism and prospectus function were analyzed separately.

Final Logic:

ASBA blocks funds instead of immediately transferring them.

🧠 Memory Trick

"ASBA = Blocked, Not Debited"

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

2 A company issues 1,00,000 shares. Applications are received for 4,00,000 shares. The directors decide to reject 2,00,000 applications outright and make a pro-rata allotment to the rest. If an applicant applied for 4,000 shares in the pro-rata group, how many shares will they be allotted?

A 1,000 shares

B 2,000 shares

C 500 shares

D 4,000 shares

💡 Short Explanation

Remaining applicants compete for 1,00,000 shares. Pro-rata ratio becomes 1:2. Applicant receives half of applied shares.

✅ Correct Answer Explanation

Applications after rejection: 400000 - 200000 = 200000 Pro-rata ratio: 100000 ÷ 200000 = 1/2 Shares allotted: 4000 × (1/2) = 2000 Thus, applicant receives 2,000 shares. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Incorrect pro-rata calculation.
Option C → Too low.
Option D → Full allotment impossible.

🎯 Strategy

Used

Substitution

Application:

Pro-rata ratio applied mathematically.

Final Logic:

Half allotment due to 1:2 ratio.

🧠 Memory Trick

"Pro-rata Means Proportionate"

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

3 Even when a share issue is heavily over-subscribed by the public, the Subscribed Capital in the final balance sheet cannot mathematically exceed which of the following?

A Authorized Capital

B Called-up Capital

C Reserve Capital

D Issued Capital

💡 Short Explanation

Subscribed capital comes from issued shares. Investors cannot subscribe beyond issued amount. Oversubscription does not increase issued capital.

✅ Correct Answer Explanation

Subscribed Capital cannot exceed Issued Capital because subscription relates only to shares actually offered by the company. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Authorized capital may exceed issued capital.
Option B → Called-up capital is later stage.
Option C → Reserve capital is unrelated.

🎯 Strategy

Used

Conceptual Understanding

Application:

Relationship among capital categories was analyzed.

Final Logic:

Subscription cannot exceed shares issued.

🧠 Memory Trick

"Subscribed ≤ Issued"

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

4 Assertion (A): The dispatch of the Letter of Allotment legally transforms the share applicant into a shareholder of the company.
Reason (R): Allotment signifies the company's acceptance of the applicant's offer to buy shares, establishing a valid contract.

A Both A and R are true, but R is not the explanation of A

B Both A and R are true, and R is the correct explanation of A

C A is true, but R is false

D A is false, but R is true

💡 Short Explanation

Allotment creates shareholder status. Company acceptance forms contract. Reason correctly explains assertion.

✅ Correct Answer Explanation

The applicant becomes a shareholder after allotment because allotment legally represents acceptance of the offer to purchase shares. Thus: Assertion is true. Reason is true. Reason correctly explains Assertion. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Reason directly explains assertion.
Option C → Reason is correct.
Option D → Assertion is also true.

🎯 Strategy

Used

Assertion–Reason Analysis

Application:

Contract formation principles were applied.

Final Logic:

Acceptance through allotment creates membership.

🧠 Memory Trick

"Allotment = Acceptance"

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

5 A company registers with Rs. 50,00,000 authorized capital but issues only 2,00,000 shares of Rs. 10 each to the public. To proceed with allotment, what is the absolute minimum subscription amount in Rupees that must be received?

A Rs. 50,00,000

B Rs. 45,00,000

C Rs. 18,00,000

D Rs. 20,00,000

💡 Short Explanation

Issued capital equals Rs. 20 Lakhs. Minimum subscription = 90%. Required amount = Rs. 18 Lakhs.

✅ Correct Answer Explanation

Issued amount: 200000 × 10 = 2000000 Minimum subscription: 90% × 2000000 = 1800000 Thus, minimum subscription amount = Rs. 18,00,000. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Authorized capital irrelevant here.
Option B → Incorrect calculation.
Option D → Represents full issue amount.

🎯 Strategy

Used

Substitution

Application:

SEBI 90% rule applied on issued capital.

Final Logic:

90% of Rs. 20 Lakhs = Rs. 18 Lakhs.

🧠 Memory Trick

"Minimum = 90% of Issue"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: 90% Rule – Page X

6 If a company fails to secure 90% minimum subscription, it must refund the money. If this refund is delayed beyond the statutory 8 days from closure, what is the penal interest rate mandated by Section 73(2)?

A 6%

B 10%

C 12%

D 15%

💡 Short Explanation

Delayed refund attracts penalty. Section 73(2) prescribes 15%. Investor protection rule applies.

✅ Correct Answer Explanation

If refund is delayed beyond the prescribed period, the company becomes liable to pay interest at 15% per annum. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Incorrect statutory rate.
Option B → Not prescribed.
Option C → Relates to other provisions.

🎯 Strategy

Used

Legal Recall

Application:

Penalty interest provision was identified.

Final Logic:

Delayed refund = 15% interest.

🧠 Memory Trick

"Late Refund = 15%"

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

7 When shares are issued at par for consideration other than cash (e.g., buying an asset), arrange the recording steps:
1. Debit the Asset A/c and Credit the Vendor A/c
2. Debit the Vendor A/c and Credit Share Capital A/c
3. Debit Share Capital A/c and Credit Vendor A/c

A 1, 2

B 2, 1

C 1, 3

D 3, 2

💡 Short Explanation

Asset acquisition recorded first. Vendor liability created initially. Shares issued afterward to settle liability.

✅ Correct Answer Explanation

Correct sequence: 1. Asset A/c Dr. → Vendor A/c 2. Vendor A/c Dr. → Share Capital A/c Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Vendor entry cannot precede asset recognition.
Option C → Share Capital is never debited here.
Option D → Incorrect journal flow.

🎯 Strategy

Used

Sequential Logic

Application:

Accounting treatment for non-cash issue was arranged.

Final Logic:

Acquire asset first, settle vendor later.

🧠 Memory Trick

"Asset First, Shares Later"

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

8 Match the following:

List 1	List 2
1. Calls in Arrears	a. Deducted from called-up capital
2. Securities Premium	b. Credited to Reserves and Surplus
3. Discount on Issue	c. Regarded as a capital loss
4. Calls in Advance	d. Added to current liabilities

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

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

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

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

💡 Short Explanation

Calls in arrears reduce called-up capital. Securities premium forms reserve. Calls in advance are liabilities.

✅ Correct Answer Explanation

Correct matching: 1. Calls in Arrears → b. Deducted from called-up capital 2. Securities Premium → c. Credited to Reserves and Surplus 3. Discount on Issue → d. Regarded as a capital loss 4. Calls in Advance → a. Added to current liabilities Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Calls in arrears incorrectly matched.
Option C → Securities premium mismatched.
Option D → Multiple wrong pairings.

🎯 Strategy

Used

Option Grouping

Application:

Accounting classifications were matched carefully.

Final Logic:

Only Option B matches correctly.

🧠 Memory Trick

"Arrears Deduct, Premium Reserve"

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

9 In a scenario of under-subscription (assuming the 90% threshold is met), how are the application entries passed?

A For the full issued amount regardless of applications

B By adjusting excess money to allotment

C Based strictly on the actual number of shares applied for

D By rejecting all applications and starting over

💡 Short Explanation

Under-subscription means fewer applications. Entries reflect actual applications received. No excess adjustment exists.

✅ Correct Answer Explanation

In under-subscription, journal entries are recorded according to the actual number of shares applied for and money received. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Entries cannot exceed actual applications.
Option B → Excess adjustment applies in over-subscription.
Option D → Under-subscription does not require restarting issue.

🎯 Strategy

Used

Conceptual Understanding

Application:

Accounting treatment under under-subscription was analyzed.

Final Logic:

Entries depend on actual applications received.

🧠 Memory Trick

"Under-subscription = Actual Applications"

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

10 Evaluate these statements about ASBA:
I. ASBA was developed by SEBI for IPOs and Rights Issues.
II. If securities are not allotted, the bank permanently confiscates the blocked amount.

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 was introduced by SEBI. Blocked money is released if shares are not allotted. Hence Statement II is false.

✅ Correct Answer Explanation

Statement I is correct because ASBA was introduced by SEBI for IPOs and Rights Issues. Statement II is false because blocked funds are released back if allotment does not occur. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Statement I is true.
Option C → Statement II is incorrect.
Option D → Statement I is valid.

🎯 Strategy

Used

Statement Verification

Application:

ASBA functioning and refund mechanism were analyzed.

Final Logic:

ASBA blocks, not confiscates, funds.

🧠 Memory Trick

"ASBA Blocks, Then Releases"

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

📄 Passage

"When minimum subscription has been received and certain legal formalities on the allotment of shares have been duly complied with, the directors of the company proceed to make the allotment. It is customary to ask for 'Allotment Money' from the allottees. In case lesser number of shares have to be allotted than those applied for (over subscription), the excess application money must be adjusted towards the amount due on allotment from the allottees. The effect of these steps is to close the temporary share application account."

According to the passage, what is the ultimate accounting effect of transferring application money and adjusting the excess towards allotment?

A To open a new reserve account

B To reduce the paid-up capital

C To generate capital profits for the directors

D To close the temporary share application account

💡 Short Explanation

Application account is temporary. Transfer and adjustment finalize it. Account balance becomes nil.

✅ Correct Answer Explanation

The passage explicitly states that the transfer and adjustment process closes the temporary share application account. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → No reserve account is created.
Option B → Paid-up capital is unaffected.
Option C → Directors do not receive capital profits.

🎯 Strategy

Used

Passage-Based Identification

Application:

Final accounting impact mentioned in passage was identified.

Final Logic:

Application account closes after transfer.

🧠 Memory Trick

"Temporary Account Must Close"

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

📄 Passage

In the event of an over-subscription where pro-rata allotment is utilized, the passage states that the excess application money is typically adjusted towards what?

A The Calls in Arrears account

B The amount due on allotment from the allottees

C The Securities Premium account

D The company's preliminary expenses

💡 Short Explanation

Excess application money is not refunded immediately. It is adjusted toward allotment dues. Common in pro-rata allotment.

✅ Correct Answer Explanation

The passage clearly states that excess application money is adjusted toward the amount due on allotment. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Calls in arrears arise from non-payment.
Option C → Securities premium is unrelated.
Option D → Preliminary expenses are unrelated.

🎯 Strategy

Used

Passage-Based Identification

Application:

Treatment of excess application money was identified directly.

Final Logic:

Excess money offsets allotment amount.

🧠 Memory Trick

"Excess Application → Allotment Adjustment"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Adjustment of Excess – Page X

13 A shareholder holding 400 shares fails to pay a Rs. 2 first call, but simultaneously another shareholder holding 300 shares pays their final call of Rs. 2 in advance. What amounts will be debited to Calls in Arrears and credited to Calls in Advance, respectively?

A Rs. 800 and Rs. 600

B Rs. 600 and Rs. 800

C Rs. 800 and Rs. 800

D Rs. 600 and Rs. 600

💡 Short Explanation

Arrears = unpaid first call. Advance = amount paid before due date. Separate calculations required.

✅ Correct Answer Explanation

Calls in Arrears: 400 × 2 = 800 Calls in Advance: 300 × 2 = 600 Thus: Calls in Arrears = Rs. 800 Calls in Advance = Rs. 600 Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Values reversed.
Option C → Advance incorrectly calculated.
Option D → Arrears incorrectly calculated.

🎯 Strategy

Used

Substitution

Application:

Separate share quantities multiplied by call amount.

Final Logic:

400×2 and 300×2.

🧠 Memory Trick

"Arrears Unpaid, Advance Prepaid"

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

14 Under what condition does 'Paid-up Capital' exactly equal 'Called-up Capital' after the final call is made?

A When shares are issued at a massive premium

B When the company operates at a loss

C When all shareholders have fully paid all the called amounts without arrears

D When calls in advance equal calls in arrears

💡 Short Explanation

Paid-up capital equals called-up minus arrears. No arrears means equal amounts. Full payment by all shareholders required.

✅ Correct Answer Explanation

When every shareholder pays all called amounts fully, no calls in arrears remain. Therefore: Paid-up Capital = Called-up Capital Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Premium does not affect equality.
Option B → Profit/loss irrelevant.
Option D → Calls in advance are treated separately.

🎯 Strategy

Used

Conceptual Formula Application

Application:

Paid-up capital formula was analyzed.

Final Logic:

No arrears means equality.

🧠 Memory Trick

"No Arrears = Equal Capital"

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

15 When forfeiting shares originally issued at a premium, if the premium amount has NOT been received, the journal entry must explicitly debit which account alongside Share Capital?

A Share Forfeiture A/c

B Securities Premium Reserve A/c

C Calls in Advance A/c

D Capital Reserve A/c

💡 Short Explanation

Unpaid premium must be reversed. Securities premium previously credited. Therefore it is debited on forfeiture.

✅ Correct Answer Explanation

If premium has not been received, Securities Premium Reserve A/c must be debited while forfeiting the shares. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Share forfeiture account is credited.
Option C → Calls in advance unrelated.
Option D → Capital reserve not involved.

🎯 Strategy

Used

Journal Entry Logic

Application:

Accounting reversal of unpaid premium was applied.

Final Logic:

Unreceived premium must be cancelled.

🧠 Memory Trick

"Unpaid Premium Must Reverse"

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

16 If a company utilizes a 'Share Application and Allotment A/c', receives Rs. 50,000 on application, transfers Rs. 30,000 to Share Capital, and refunds Rs. 20,000, what is the net remaining balance of the Combined Account after these transactions?

A Rs. 20,000 Credit

B Rs. 30,000 Debit

C Rs. 50,000 Credit

D Nil

💡 Short Explanation

Entire amount either transferred or refunded. No balance remains afterward. Combined account closes completely.

✅ Correct Answer Explanation

Total received: 50000 Transferred + refunded: 30000 + 20000 = 50000 Thus, remaining balance: 50000 - 50000 = 0 Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Refund already accounted.
Option B → Incorrect balance direction.
Option C → Full amount not remaining.

🎯 Strategy

Used

Substitution

Application:

Total receipts compared against total adjustments.

Final Logic:

Account fully closes.

🧠 Memory Trick

"Transferred + Refunded = Closed Account"

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

17 A company forfeits 1,000 shares of Rs. 10 each on which Rs. 7 per share had been called up. The shareholder had paid application and allotment money totaling Rs. 5 per share but failed to pay the first call of Rs. 2 per share. What amount will be credited to Share Forfeiture Account?

A Rs. 2,000

B Rs. 5,000

C Rs. 7,000

D Rs. 10,000

💡 Short Explanation

Share forfeiture account receives amount already paid. Shareholder paid Rs. 5 per share. Total credit = Rs. 5,000.

✅ Correct Answer Explanation

Amount already received: 1000 \times 5 = 5000 Therefore, Share Forfeiture Account is credited with Rs. 5,000. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Represents unpaid call amount.
Option C → Represents called-up amount.
Option D → Represents full nominal value.

🎯 Strategy

Used

Substitution

Application:

Amount paid per share multiplied by number of shares.

Final Logic:

Share forfeiture receives paid amount only.

🧠 Memory Trick

"Forfeiture Credit = Amount Received"

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

18 After forfeiture, 500 of these shares are reissued at Rs. 9 per share as fully paid-up shares of Rs. 10 each. What is the maximum permissible discount on reissue per share?

A Rs. 5

B Rs. 2

C Rs. 1

D Rs. 10

💡 Short Explanation

Reissue discount cannot exceed forfeited amount. Amount forfeited per share = Rs. 5. Hence maximum allowable discount is Rs. 5.

✅ Correct Answer Explanation

Amount forfeited per share: 5000 ÷ 1000 = 5 Maximum reissue discount cannot exceed forfeited amount per share. Thus, maximum permissible discount = Rs. 5 per share. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Below permissible maximum.
Option C → Actual discount in case, not maximum allowed.
Option D → Exceeds forfeited amount.

🎯 Strategy

Used

Legal Rule Application

Application:

Maximum discount rule applied using forfeiture amount.

Final Logic:

Discount ≤ Forfeited amount.

🧠 Memory Trick

"Reissue Discount Cannot Exceed Forfeiture"

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

19 Assertion (A): Share Forfeiture Account is generally treated as a capital profit.
Reason (R): It arises from amounts received on shares that are subsequently forfeited and may later be transferred to Capital Reserve.

A Both A and R are true, and R correctly 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

Forfeited amount represents capital gain. It may later transfer to capital reserve. Reason correctly explains treatment.

✅ Correct Answer Explanation

Share Forfeiture Account represents capital profit because it arises from amounts already received on forfeited shares. After reissue, remaining balance may be transferred to Capital Reserve. Thus: Assertion is true. Reason is true. Reason correctly explains Assertion. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Reason directly explains assertion.
Option C → Reason is also true.
Option D → Assertion is not false.

🎯 Strategy

Used

Assertion–Reason Analysis

Application:

Nature and treatment of forfeiture balance were linked.

Final Logic:

Forfeiture balance creates capital profit.

🧠 Memory Trick

"Forfeiture Surplus → Capital Reserve"

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

20 Arrange the accounting sequence in proper order for forfeiture and reissue of shares:
1. Transfer balance to Capital Reserve
2. Reissue forfeited shares
3. Forfeit original shares due to non-payment

A 1, 2, 3

B 3, 2, 1

C 2, 1, 3

D 3, 1, 2

💡 Short Explanation

Shares are first forfeited. Reissue happens afterward. Remaining surplus transferred last.

✅ Correct Answer Explanation

Correct sequence: 1. Forfeit original shares 2. Reissue forfeited shares 3. Transfer remaining balance to Capital Reserve Thus, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Capital reserve transfer occurs last.
Option C → Reissue cannot precede forfeiture.
Option D → Capital reserve transfer occurs after reissue.

🎯 Strategy

Used

Sequential Logic

Application:

Complete forfeiture-reissue process was arranged chronologically.

Final Logic:

Forfeit → Reissue → Transfer.

🧠 Memory Trick

"Forfeit First, Reserve Last"

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

CUET UG Accountancy Booster Test 2 Issue and Accounting of Shares

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