CUET UG Accountancy Booster Test 3 Share Capital -

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CUET UG Accountancy Booster Test 2 Share Capital

⏱️ 30 Minutes

❓ 20 Questions

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

CUET UG Accountancy Booster Test 2 Share Capital

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QUESTION 1 OF 20

Evaluate the following statements regarding the nature of a company's shares:
(I) Shares of a public limited company are freely transferable.
(II) A share forms the basis of ownership interest in a company.
(III) The Articles of the company cannot prescribe the manner in which the transfer of shares will be made.

Answer Review

1 Evaluate the following statements regarding the nature of a company's shares:
(I) Shares of a public limited company are freely transferable.
(II) A share forms the basis of ownership interest in a company.
(III) The Articles of the company cannot prescribe the manner in which the transfer of shares will be made.

A I, II, and III are correct.

B Only I is correct.

C Only II and III are correct.

D Only I and II are correct.

💡 Short Explanation

Public company shares are freely transferable. Shares represent ownership interest. Articles may prescribe transfer procedure.

✅ Correct Answer Explanation

Statement I is correct because public company shares are freely transferable. Statement II is correct because shares represent ownership interest in the company. Statement III is false because Articles of Association may prescribe the procedure for transfer of shares. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Statement III is false.
Option B → Statement II is also true.
Option C → Statement I is also true.

🎯 Strategy

Used

Statement Verification

Application:

Each statement was independently tested against company law concepts.

Final Logic:

Only Statements I and II are correct.

🧠 Memory Trick

"Shares = Ownership + Transferability"

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

2 Which fundamental legal characteristic of a joint stock company directly necessitates that ownership is separated from management, prompting shareholders to elect a Board of Directors?

A Perpetual Succession

B Common Seal

C Separate Legal Entity and Artificial Person status

D Limited Liability

💡 Short Explanation

Company is artificial legal person. Shareholders are separate from management. Directors manage on owners' behalf.

✅ Correct Answer Explanation

Because a company is an artificial legal person and separate legal entity, shareholders cannot directly manage operations collectively. Therefore, shareholders elect directors to manage affairs. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Relates to continuity.
Option B → Relates to authentication.
Option D → Relates to liability protection.

🎯 Strategy

Used

Conceptual Understanding

Application:

The legal nature of company structure was analyzed.

Final Logic:

Separate legal entity causes separation of ownership and management.

🧠 Memory Trick

"Owners Separate from Managers"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Ownership & Management – Page X

3 If a company requires capital beyond its current 'Authorised Capital' limit to fund massive expansion, what legal route must it take?

A Increase the authorised capital strictly as per the procedure laid down in the Companies Act.

B Issue debentures instead without changing the authorised capital under any circumstance.

C Transfer reserve capital directly into authorised capital without legal formalities.

D Issue shares at a massive premium to bypass the authorized limit entirely.

💡 Short Explanation

Authorised capital sets maximum limit. Expansion beyond limit needs legal increase. Companies Act procedure must be followed.

✅ Correct Answer Explanation

A company cannot issue shares beyond authorised capital unless it legally increases the authorised capital according to Companies Act procedures. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Debentures do not solve authorised capital limits.
Option C → Legal formalities are compulsory.
Option D → Premium cannot bypass legal limits.

🎯 Strategy

Used

Legal Recall

Application:

Rules relating to authorised capital were applied.

Final Logic:

Authorised capital must legally be increased first.

🧠 Memory Trick

"Need More Capital? Increase Authorised Capital"

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

4 Assertion (A): The authorised capital limits the maximum number of shares a company can ever issue at a given time.
Reason (R): This authorised capital limit is completely unchangeable and permanently fixed in the Memorandum of Association.

A Both A and R are true.

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

Authorised capital limits issue capacity. It can legally be altered. Hence reason is false.

✅ Correct Answer Explanation

Assertion is true because authorised capital sets the maximum issue limit. Reason is false because authorised capital can be altered through legal procedure. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Reason is incorrect.
Option C → Assertion is true.
Option D → Assertion is not false.

🎯 Strategy

Used

Assertion–Reason Analysis

Application:

Nature and flexibility of authorised capital were evaluated.

Final Logic:

Authorised capital limits issue but is alterable.

🧠 Memory Trick

"Maximum, But Changeable"

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

5 A company is registered with Rs. 50,00,000 as nominal capital. It issues shares worth Rs. 30,00,000 for public subscription and also issues fully paid shares worth Rs. 5,00,000 to vendors for the purchase of machinery. What is the total Issued Capital?

A Rs. 35,00,000

B Rs. 30,00,000

C Rs. 50,00,000

D Rs. 15,00,000

💡 Short Explanation

Issued capital includes public and vendor issue. Total issue = Rs. 30 Lakhs + Rs. 5 Lakhs. Total issued capital = Rs. 35 Lakhs.

✅ Correct Answer Explanation

Issued Capital calculation: 3000000 + 500000 = 3500000 Thus, total Issued Capital = Rs. 35,00,000. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Vendor shares ignored.
Option C → Represents nominal capital.
Option D → Incorrect total.

🎯 Strategy

Used

Substitution

Application:

All issued shares were added together.

Final Logic:

Public issue + Vendor issue = Issued capital.

🧠 Memory Trick

"Issued Means Total Shares Issued"

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

6 If Authorised Capital is represented by Rs. X, Issued Capital by Rs. Y, and Subscribed Capital by Rs. Z, what is the correct formula to derive Unissued Capital?

A X - Z

B Y - Z

C Z - X

D X - Y

💡 Short Explanation

Unissued capital is unused authorised capital. Formula subtracts issued amount. Remaining balance is unissued capital.

✅ Correct Answer Explanation

Formula: Unissued Capital = X – Y Thus, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Subscribed capital is irrelevant here.
Option B → Represents unsubscribed portion.
Option C → Incorrect arrangement.

🎯 Strategy

Used

Formula Identification

Application:

Authorised and issued capital relationship was applied.

Final Logic:

Authorised minus issued = unissued.

🧠 Memory Trick

"Unissued = Unused Authorised"

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

7 Arrange the stages logically in a case of oversubscription where directors decide to make a pro-rata allotment to remaining applicants after outright rejections:
1. Refund money on outright rejected applications
2. Receive applications for more shares than issued
3. Adjust excess money of pro-rata allottees towards allotment
4. Invite public subscription

A 4, 1, 2, 3

B 4, 2, 1, 3

C 2, 4, 3, 1

D 1, 2, 3, 4

💡 Short Explanation

Public subscription invited first. Oversubscription occurs next. Rejected applicants refunded. Excess money adjusted afterward.

✅ Correct Answer Explanation

Correct sequence: 1. Invite public subscription 2. Receive excess applications 3. Refund rejected applicants 4. Adjust excess money for pro-rata allottees Thus, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Refund cannot occur before applications.
Option C → Subscription invitation must occur first.
Option D → Incorrect chronology.

🎯 Strategy

Used

Sequential Logic

Application:

Oversubscription handling process was arranged chronologically.

Final Logic:

Invite → Receive → Refund → Adjust.

🧠 Memory Trick

"Invite, Receive, Refund, Adjust"

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

8 In a situation of oversubscription, if the directors adopt a pro-rata allotment strategy, what typically happens to the excess application money received from applicants who were partially allotted shares?

A It is immediately refunded with 15% interest.

B It is transferred permanently to the Capital Reserve account.

C It is adjusted towards the amount due on allotment of those shares.

D It is converted automatically into company debentures.

💡 Short Explanation

Excess application money is not wasted. It is adjusted against allotment dues. Common practice in pro-rata allotment.

✅ Correct Answer Explanation

Under pro-rata allotment, excess application money is generally adjusted toward allotment money payable on allotted shares. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Interest refund applies only to delayed refunds.
Option B → Capital reserve treatment is incorrect.
Option D → Automatic debenture conversion does not occur.

🎯 Strategy

Used

Conceptual Understanding

Application:

Treatment of excess application money was identified.

Final Logic:

Excess money gets adjusted.

🧠 Memory Trick

"Excess Application → Allotment Adjustment"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Pro-rata Allotment – Page X

📄 Passage

"A company may reserve a portion of its uncalled capital to be called only in the event of winding up of the company. Such uncalled amount is called 'Reserve Capital' of the company. It is available only for the creditors on winding up of the company. It represents the ultimate safety net."

Based on the passage and capital structure rules, if a share has a face value of Rs. 100, Rs. 60 is currently called up, and Rs. 20 is officially kept as Reserve Capital. What is the remaining Rs. 20 technically called before it is called up or reserved?

A Paid-up capital

B Calls in arrears

C Issued capital

D Uncalled capital

💡 Short Explanation

Face value = Rs. 100. Rs. 60 called up and Rs. 20 reserved. Remaining unpaid amount is uncalled capital.

✅ Correct Answer Explanation

Calculation: 100 - 60 - 20 = 20 The remaining Rs. 20 has not yet been called and is not reserved separately, so it is treated as uncalled capital. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Paid-up means amount received.
Option B → Calls in arrears means unpaid called amount.
Option C → Issued capital relates to shares issued.

🎯 Strategy

Used

Substitution

Application:

Components of share capital were mathematically separated.

Final Logic:

Remaining unpaid amount = Uncalled capital.

🧠 Memory Trick

"Not Called Yet = Uncalled"

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

📄 Passage

Based on the passage, why does the company NOT call the 'Reserve Capital' during normal instalment collections (like application, allotment, and first call)?

A Because it is illegal to collect more than 50% of the share face value in total.

B Because it is strictly reserved to be called ONLY in the event of winding up of the company.

C Because shareholders usually default heavily on final calls.

D Because it is an amount paid strictly by the directors, not regular shareholders.

💡 Short Explanation

Reserve capital has special purpose. It protects creditors during winding up. It cannot be collected during normal operations.

✅ Correct Answer Explanation

Reserve Capital is specifically reserved for use only during winding up and cannot be called during ordinary business operations. Thus, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → No such legal limit exists.
Option C → Default risk is unrelated.
Option D → Reserve capital concerns shareholders generally.

🎯 Strategy

Used

Passage-Based Identification

Application:

Purpose of reserve capital was identified directly.

Final Logic:

Reserve capital exists only for winding up.

🧠 Memory Trick

"Reserve Means Reserved for Closure"

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

11 Subscribed capital for a company is 10,000 shares of Rs. 10 each. The company has called up Rs. 8 per share. All money is received successfully except the first call of Rs. 2 per share on 500 shares. Calculate the final Paid-up Capital.

A Rs. 79,000

B Rs. 80,000

C Rs. 78,000

D Rs. 1,00,000

💡 Short Explanation

Called-up capital calculated first. Calls in arrears deducted afterward. Balance becomes paid-up capital.

✅ Correct Answer Explanation

Called-up capital: 10000 × 8 = 80000 Calls in arrears: 500 × 2 = 1000 Paid-up capital: 80000 - 1000 = 79000 Thus, final Paid-up Capital = Rs. 79,000. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Calls in arrears not deducted.
Option C → Incorrect calculation.
Option D → Represents nominal capital.

🎯 Strategy

Used

Substitution

Application:

Paid-up capital formula applied carefully.

Final Logic:

Paid-up = Called-up – Arrears.

🧠 Memory Trick

"Deduct Arrears from Called-up"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Paid-up Capital – Page X

12 If a shareholder defaults on a call, and the company formally maintains a 'Calls in Arrears' account, what is the specific journal entry passed to record this unpaid amount?

A Debit Share Capital A/c, Credit Calls in Arrears A/c

B Debit Bank A/c, Credit Calls in Arrears A/c

C Debit Calls in Arrears A/c, Credit respective Share Call A/c

D Debit Share Call A/c, Credit Calls in Arrears A/c

💡 Short Explanation

Unpaid amount becomes arrears. Calls in arrears account is debited. Share call account is credited.

✅ Correct Answer Explanation

Correct journal entry: Calls in Arrears A/c Dr. To Share Call A/c Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Incorrect accounts affected.
Option B → Bank account not involved.
Option D → Reverse treatment incorrect.

🎯 Strategy

Used

Journal Entry Logic

Application:

Accounting treatment of unpaid calls was applied.

Final Logic:

Unpaid call becomes calls in arrears.

🧠 Memory Trick

"Arrears Dr., Call Cr."

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

13 What specific restriction is placed on the amount of any single future call according to standard provisions like Table F of the Companies Act?

A It should not exceed 10% of the face value.

B It should not exceed 25% of the face value of the share.

C It must be exactly 50% of the uncalled capital.

D There is no restriction whatsoever in the Act.

💡 Short Explanation

Table F restricts future call amount. Single call cannot exceed 25%. Protects shareholders from sudden burden.

✅ Correct Answer Explanation

According to Table F provisions, a single future call cannot exceed 25% of the face value of the share. Hence, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Incorrect percentage.
Option C → No such exact requirement exists.
Option D → Restriction clearly exists.

🎯 Strategy

Used

Legal Recall

Application:

Table F rule regarding calls was identified.

Final Logic:

Maximum call limit = 25%.

🧠 Memory Trick

"Single Call ≤ 25%"

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

14 Assertion (A): Reserve Capital cannot be used to pay off general debts during the ongoing, regular existence of the company.
Reason (R): It is exclusively meant for the protection of creditors strictly during winding up.

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, R is false.

D A is false, R is true.

💡 Short Explanation

Reserve capital has restricted usage. It protects creditors during winding up. Reason correctly explains assertion.

✅ Correct Answer Explanation

Reserve Capital is specifically reserved for creditor protection during winding up and therefore cannot be used during ordinary operations. Thus: Assertion is true. Reason is true. Reason explains Assertion. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Reason directly explains assertion.
Option C → Reason is true.
Option D → Assertion is true.

🎯 Strategy

Used

Assertion–Reason Analysis

Application:

Purpose and restriction of reserve capital were linked logically.

Final Logic:

Restricted purpose explains restricted use.

🧠 Memory Trick

"Reserve Capital = Winding-up Safety"

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

15 Which statements are true regarding winding up and share capital?
(I) Reserve Capital is only called up during the winding up of a company.
(II) Companies limited by guarantee have members' liability arising only in the event of its winding up.

A Only I is true.

B Only II is true.

C Both I and II are true.

D Neither is true.

💡 Short Explanation

Reserve capital is callable only during winding up. Guarantee liability also activates at winding up. Both statements are correct.

✅ Correct Answer Explanation

Statement I is correct because reserve capital is reserved for winding up. Statement II is correct because guarantee company liability arises during winding up. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Statement II is also true.
Option B → Statement I is also true.
Option D → Both statements are valid.

🎯 Strategy

Used

Statement Verification

Application:

Winding-up related concepts were checked carefully.

Final Logic:

Both statements correctly describe winding-up liability.

🧠 Memory Trick

"Winding Up Activates Liability"

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

16 Match the structural capital concept with its primary defining characteristic or purpose:

List 1	List 2
1. Reserve Capital	a. Protection explicitly for creditors during winding up
2. Paid-up Capital	b. Amount actually received from shareholders
3. Issued Capital	c. Amount offered to the public and vendors
4. Unissued Capital	d. Available for public subscription at a later date

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

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

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

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

💡 Short Explanation

Reserve capital protects creditors. Paid-up capital is amount received. Unissued capital remains available for future issue.

✅ Correct Answer Explanation

Correct matching: 1. Reserve Capital → d. Protection explicitly for creditors during winding up 2. Paid-up Capital → b. Amount actually received from shareholders 3. Issued Capital → c. Amount offered to the public and vendors 4. Unissued Capital → a. Available for public subscription later Thus, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Reserve capital incorrectly matched.
Option B → Multiple mismatches occur.
Option C → Issued capital incorrectly paired.

🎯 Strategy

Used

Option Grouping

Application:

Each capital category was matched with its feature.

Final Logic:

Only Option D matches accurately.

🧠 Memory Trick

"Reserve-Protects, Paid-up-Received"

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

17 The division of share capital into specific classes of shares (such as Equity and Preference) along with their respective rights and obligations is legally prescribed by which corporate document?

A Memorandum of Association

B Prospectus

C Articles of Association

D Certificate of Incorporation

💡 Short Explanation

Articles prescribe internal rules. Rights and obligations are specified there. Share classifications are governed by AOA.

✅ Correct Answer Explanation

The Articles of Association define: share classes, shareholder rights, obligations, and procedures. Hence, Option C is correct.

❓ Why Other Options Are Incorrect

Option A → Memorandum defines scope and objectives.
Option B → Prospectus invites investment.
Option D → Certificate only confirms incorporation.

🎯 Strategy

Used

Definition Recall

Application:

Relevant corporate documents were distinguished.

Final Logic:

AOA governs share rights.

🧠 Memory Trick

"AOA Defines Share Rules"

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

18 From an accounting viewpoint, what is the temporary account used to hold individual share application amounts before they are formally merged into the main capital account upon allotment?

A Share Allotment Account

B Calls in Arrears Account

C Securities Premium Account

D Share Application Account

💡 Short Explanation

Application money is first collected separately. Temporary account records applications. Later transferred to capital account.

✅ Correct Answer Explanation

Before allotment, application money is temporarily recorded in Share Application Account. Hence, Option D is correct.

❓ Why Other Options Are Incorrect

Option A → Used after allotment stage.
Option B → Records unpaid calls.
Option C → Records premium only.

🎯 Strategy

Used

Accounting Identification

Application:

Accounting stages of share issue were examined.

Final Logic:

Application receipts first enter Share Application Account.

🧠 Memory Trick

"Application Money → Share Application Account"

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

19 Arrange the following major headings as they appear under the 'Equity and Liabilities' side of a company's balance sheet:
1. Reserves and Surplus
2. Share Capital
3. Shareholders' Funds

A 1, 2, 3

B 3, 2, 1

C 2, 3, 1

D 3, 1, 2

💡 Short Explanation

Shareholders' Funds is main heading. Share Capital and Reserves appear underneath. Proper hierarchy must be followed.

✅ Correct Answer Explanation

Balance Sheet hierarchy: 1. Shareholders' Funds 2. Share Capital 3. Reserves and Surplus Thus, Option B is correct.

❓ Why Other Options Are Incorrect

Option A → Main heading missing first.
Option C → Incorrect structure.
Option D → Share capital precedes reserves.

🎯 Strategy

Used

Sequential Arrangement

Application:

Balance sheet presentation hierarchy was recalled.

Final Logic:

Main heading appears before sub-headings.

🧠 Memory Trick

"Funds → Capital → Reserves"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Balance Sheet Presentation – Page X

20 How is the specific category 'Subscribed and fully paid-up' defined when calculating the final values in the Notes to Accounts?

A Shares where the entire nominal (face) value has been called up by the company and fully received.

B Shares where only 50% of the nominal value has been called up.

C Shares that have been forfeited and completely reissued at a premium.

D Shares where calls in arrears currently exist but are expected to be paid.

💡 Short Explanation

Entire face value must be called up. Full amount must also be received. Then shares become fully paid-up.

✅ Correct Answer Explanation

Subscribed and fully paid-up shares are those where: the full nominal value has been called up, and full payment has been received from shareholders. Hence, Option A is correct.

❓ Why Other Options Are Incorrect

Option B → Represents partly paid shares.
Option C → Reissue concept unrelated.
Option D → Calls in arrears mean not fully paid-up.

🎯 Strategy

Used

Conceptual Identification

Application:

Definition of fully paid-up capital was applied.

Final Logic:

Fully called + fully received = fully paid-up.

🧠 Memory Trick

"Fully Called + Fully Received"

📚 Class XI – Accountancy – Chapter: Accounting for Share Capital – Topic: Notes to Accounts – Page X

CUET UG Accountancy Booster Test 2 Share Capital

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