A
Which of the following is not a permitted use of the Securities Premium Account?
A. Issue of fully paid bonus shares
B. Writing off discount on issue of debentures
C. Payment of premium on redemption of preference shares
D. Payment of cash dividend
Answer: D. Payment of cash dividend
Which of the following expenses is generally apportioned in the Sales Ratio?
A. Office Rent
B. Directors' Remuneration
C. Sales Commission
D. Audit Fees
Answer: C. Sales Commission
Creation of Capital Redemption Reserve results in:
A. Increase in Share Capital
B. Reduction in distributable profits
C. Increase in Cash Balance
D. Increase in Working Capital
Answer: B. Reduction in distributable profits
Which statement regarding bonus shares is incorrect?
A. They are issued out of accumulated reserves.
B. They increase paid-up share capital.
C. They bring fresh cash into the company.
D. They capitalize reserves.
Answer: C. They bring fresh cash into the company.
Redemption of preference shares without complying with statutory provisions is:
A. Valid with shareholders' approval
B. Valid with directors' approval
C. Invalid
D. Valid if cash is available
Answer: C. Invalid
2. If preference shares are redeemed entirely out of the proceeds of a fresh issue of shares, then:
A. Capital Redemption Reserve must be created for the entire nominal value.
B. Capital Redemption Reserve is not required.
C. General Reserve must be transferred to Capital Redemption Reserve.
D. Securities Premium Account must be be transferred to Capital Redemption Reserve.
Answer: B. Capital Redemption Reserve is not required.
Firm underwriting is treated as:
A. Marked applications only
B. Unmarked applications only
C. A separate commitment of the underwriter
D. Public subscription
Answer: C. A separate commitment of the underwriter
The liability of an underwriter arises because:
A. Shares are issued at premium.
B. The issue may remain under-subscribed.
C. Shares are partly paid.
D. Shares are listed.
Answer: B. The issue may remain under-subscribed.
The pre-incorporation period begins from:
A. Date of incorporation
B. Date of commencement of business
C. Date from which business is taken over
D. Date of first Board Meeting
Answer: C. Date from which business is taken over
Underwriting primarily safeguards the interest of:
A. Creditors
B. The issuing company
C. Existing shareholders only
D. Auditors
Answer: B. The issuing company
Which of the following does not affect the net liability of an underwriter?
A. Marked applications
B. Unmarked applications
C. Underwriting commission
D. Firm underwriting
Answer: C. Underwriting commission
Which reserve cannot be used directly for redeeming preference shares?
A. General Reserve
B. Free Reserves
C. Capital Redemption Reserve
D. Profit and Loss Balance
Answer: C. Capital Redemption Reserve
Profit prior to incorporation is considered:
A. Revenue Profit
B. Capital Profit
C. Operating Profit
D. Trading Profit
Answer: B. Capital Profit
Underwriting commission is payable because:
A. Shares are issued at premium.
B. Underwriters undertake the underwriting risk.
C. Shares are fully subscribed.
D. The company earns profits.
Answer: B. Underwriters undertake the underwriting risk.
Profit after incorporation differs from profit prior to incorporation because it:
A. Is a capital profit
B. Can generally be distributed as dividend, subject to law
C. Is transferred to Capital Reserve
D. Is never available for appropriation
Answer: B. Can generally be distributed as dividend, subject to law
Profit prior to incorporation is transferred to:
A. Profit and Loss Account
B. General Reserve
C. Capital Reserve
D. Dividend Equalisation Reserve
Answer: C. Capital Reserve
The basic objective of underwriting is to:
A. Increase dividend
B. Guarantee market price
C. Ensure subscription of the issue
D. Increase earnings per share
Answer: C. Ensure subscription of the issue
Premium payable on redemption of preference shares may be provided out of:
A. Capital Redemption Reserve only
B. Securities Premium Account or Profits
C. Share Capital only
D. Debenture Redemption Reserve
Answer: B. Securities Premium Account or Profits
Which of the following cannot be transferred to Capital Redemption Reserve?
A. General Reserve
B. Revenue Reserve
C. Securities Premium Account
D. Profit and Loss Balance
Answer: C. Securities Premium Account
Capital Redemption Reserve can generally be utilized for:
A. Declaration of dividend
B. Issue of fully paid bonus shares
C. Payment of managerial remuneration
D. Redemption premium
Answer: B. Issue of fully paid bonus shares
If the Articles of Association do not specify the nature of shares, they are deemed to be:
A. Preference shares
B. Deferred shares
C. Equity shares
D. Redeemable shares
Answer: C. Equity shares
Which of the following is always treated as a post-incorporation expense?
A. Factory Rent
B. Directors' Sitting Fees
C. Factory Wages
D. Selling Expenses
Answer: B. Directors' Sitting Fees
Which of the following does not reduce the liability of an underwriter?
A. Marked applications
B. Unmarked applications
C. Firm underwriting
D. Direct applications
Answer: C. Firm underwriting
Which of the following is generally apportioned in the Time Ratio?
A. Gross Profit
B. Sales Commission
C. Directors' Remuneration
D. Sales
Answer: C. Directors' Remuneration
Which combination is correctly matched?
A. Gross Profit – Time Ratio; Directors' Fees – Sales Ratio
B. Gross Profit – Sales Ratio; Directors' Fees – Time Ratio
C. Rent – Sales Ratio; Selling Expenses – Time Ratio
D. Gross Profit – Time Ratio; Sales Commission – Time Ratio
Answer: B. Gross Profit – Sales Ratio; Directors' Fees – Time Ratio