# Buy Back of Shares – Corporate and Management Accounting MCQ

Going through the Buy Back of Shares – Corporate and Management Accounting CS Executive MCQ Questions with Answers you can quickly revise the concepts.

## Buy Back of Shares – Corporate and Management Accounting MCQs

Question 1.
Provisions relating to buy back of securities are contained in ……….. of the Companies Act, 2013.
(A) Section 77
(B) Section 77A
(C) Section 68
(D) Section 63
(C) Section 68

Question 2.
A company may purchase its own shares or other specified securities out of –
A. Free reserves
C. Proceeds of issue of any shares
D. Proceeds of issue of specified securities.
Select the correct answer from the options given below.
(A) A and C only
(B) A, B and C only
(C) A, C and D only
(D) A or B or C or D
(D) A or B or C or D

Question 3.
Section 68 of the Companies Act, 2013 provides that no buy-back of any kind of shares or other specified securities shall be made out of the -…………..
(B) Proceeds of an earlier issue of the same kind of shares or same kind of other specified securities.
(C) General reserve in excess of 15% balance as per latest audited balance sheet.
(D) Proceeds of issue of specified securities.
(B) Proceeds of an earlier issue of the same kind of shares or same kind of other specified securities.

Question 4.
Provisions of the Section 68 relating to buy back of shares are applicable to –
(A) Private companies
(B) Public companies
(C) Listed companies
(D) All of the above
(D) All of the above

Question 5.
No company shall purchase its own shares or other specified securities, unless buy-back is authorized by its -……………….
(A) Memorandum of Association
(B) Registrar of Companies
(C) Shareholders agreement
(D) Article of Association
(D) Article of Association

Question 6.
Maximum permissible buy back under the Companies Act, 2013 is -………..
(A) 10% of paid-up capital with board resolution.
(B) 25% of paid-up capital with board resolution.
(C) 25% of the aggregate of paid-up capital and free reserves of the company with special resolution of shareholders.
(D) 25% of the aggregate of paid-up capital and free reserves of the company with ordinary resolution of shareholders.
(C) 25% of the aggregate of paid-up capital and free reserves of the company with special resolution of shareholders.

Question 7.
Which of the following is correct journal entry for the ‘Amount due on buy back of shares

(C)

Question 8.
For buy-back up to ……… of the company Board resolution is sufficient.
(A) 10% of paid-up capital
(B) 10% of free reserves
(C) 10% of paid-up capital or free reserves
(D) 10% of paid-up capital and free reserves
(D) 10% of paid-up capital and free reserves

Question 9.
Buy-back of equity shares in any financial year should not exceed –
(A) 10% of net worth
(B) 25% of the aggregate of paid-up capital and free reserves of the company
(C) 25% of the paid-up equity capital
(D) 25% of the aggregate of paid-up equity capital and preference capital
(C) 25% of the paid-up equity capital

Question 10.
As per Section 68 of the Companies Act, 2013, post buy back debt equity ratio should not exceed –
(A) 1
(B) 1.5
(C) 2
(D) 3
(C) 2

Question 11.
For the purpose of calculating debt equity ratio which of the following debts are considered -………..
(A) Secured debts
(B) Unsecured debts
(C) Current liabilities
(D) All of the above
(D) All of the above

Question 12.
Companies are allowed to buy back shares which are –
(A) Partly paid-up
(B) Fully paid-up
(C) Partly paid-up or fully paid-up at the option of company
(D) Fully paid-up and partly paid-up with the permission of Central Government
(B) Fully paid-up

Question 13.
The buy-back of the shares or other specified securities listed on any recognized stock exchange is in accordance with the –
(A) SEBI (Buy Back of Securities) Regulations, 2018
(B) SEBI (Buy Back of Securities) Regulations, 2014
(C) SEBI (Buy Back of Securities) Regulations, 1992
(D) SEBI (Buy Back of Securities) Regulations, 1994
(A) SEBI (Buy Back of Securities) Regulations, 2018

Question 14.
No offer of buy-back shall be made within a period of reckoned from the date of the closure of the preceding offer of buy-back
(A) 6 months
(B) 1 year
(C) 2 years
(D) 10 months
(B) 1 year

Question 15.
The notice of the meeting at which the special resolution is proposed to be passed relating to buy back of shares shall be accompanied by an explanatory statement stating –
(A) Full and complete disclosure of all material facts
(B) Analysis of debt equity
(C) Gross profit ratio before buy back
(D) Chairman’s view on buy back
(A) Full and complete disclosure of all material facts

Question 16.
Which of the following method of buy back is allowed under the Companies Act, 2013
(I) Buy back from the existing share-holders or security holders on a proportionate basis.
(II) Buy back from the promoters of the company only on selective basis.
(Ill) Buy back from the open market.
Select the correct answer from the options given below.
(A) (I) only
(B) (I) and (II) only
(C) (I) and (III) only
(D) (I), (II) and (III)
(C) (I) and (III) only

Question 17.
Where a company proposes to buy-back its own shares or other specified securities, it shall, before making such buy-back, file with the ROC and the SEBI, a declaration of solvency signed by –
(A) at least 2 directors of the company, one of whom shall be the managing director.
(B) at least 2 directors, managing director and Chief Financial Officer, if any.
(C) at least 2 directors of the company and Company Secretary, if any.
(D) at least 3 directors of the company, one of whom shall be the managing director.
(A) at least 2 directors of the company, one of whom shall be the managing director.

Question 18.
A company used balance of ‘General Reserve’ and T & L A/c’ for buy back of equity shares. Which of the following is correct journal entry for this transaction

(C)

Question 19.
Declaration of solvency in relation to buy back of shares has to be filed in –
(A) Form SH-6
(B) Form SH-9
(C) Form SH-4
(D) Form SH-8
(B) Form SH-9

Question 20.
As per Section 68(6) of the Companies Act, 2013, declaration of solvency should be verified by an affidavit to the effect that the Board of Directors of the company has made a full inquiry into the affairs of the company as a result of which they have formed an opinion that it is capable of meeting its liabilities and will not be rendered insolvent within a period of……….. from the date of declaration adopted by the Board.
(A) 6 months
(B) 1 year
(C) 2 years
(D) 10 months
(B) 1 year

Question 21.
Where a company buys back its own shares or other specified securities, it shall extinguish and physically destroy the shares or securities so brought back within of the last date of completion of buy-back.
(A) 3 days
(B) 8 days
(C) 7 days
(D) 9 days
(C) 7 days

Question 22.
Where a company completes a buy-back of its shares or other specified securities, it shall not make a further issue of the same kind of shares or other securities including allotment of new shares u/s 62(1)(a) [ie. right issue] or other specified securities within a period of –
(A) 6 months
(B) 1 year
(C) 2 years
(D) 10 months
(A) 6 months

Question 23.
Which of the following is allowed within next 6 months after the buyback of share
(A) Bonus issue
(B) Conversion of warrants
(C) Stock option schemes
(D) All of the above
(D) All of the above

Question 24.
Which of the following is allowed within next 6 months after the buyback of share
(A) Stock option schemes
(B) Sweats equity
(C) Conversion of preference shares or debentures into equity shares
(D) All of the above
(D) All of the above

Question 25.
Which of the following method of buy back is allowed under the Companies Act, 2013
(I) Buy back by way of purchasing the securities issued to employees of the company pursuant to a scheme of stock option.
(II) Buy back by way of purchasing the securities issued to employees of the company pursuant to a scheme of sweat equity.
Select the correct answer from the options given below.
(A) (I) only
(B) (H) only
(C) Both (I) and (II)
(D) Neither (I) or (II)
(C) Both (I) and (II)

Question 26.
Where a company buys back its shares or other specified securities, it shall maintain a register of the shares or securities so brought in
(A) Form SH-10
(B) Form SH-11
(C) Form SH-12
(D) Form SH-14
(A) Form SH-10

Question 27.
A company shall, after the completion of the buy-back, hie with the ROC and the SEBI a return relating to the buy-back in -…………..
(A) Form No. SH-14
(B) Form No. SH-12
(C) Form No. SH-10
(D) Form No. SH-11
(D) Form No. SH-11

Question 28.
Which of the following penalty is attracted if company makes default in provisions of Section 68 relating to buy back of shares
(A) The company shall be punishable with fine which shall not be less than ₹ 1 lakh but which may extend to ₹ 3 lakh
(B) The company shall be punishable with fine which shall not be le.ss than ₹ 5 lakh but which may extend to₹ 10 lakh
(C) The company shall be punishable with fine which shall not be less than ₹ 2 lakh but which may extend to ₹ 8 lakh
(D) The company shall be punishable with fine which shall not be less than ₹ 5 lakh but which may extend to ₹ 25 lakh
(A) The company shall be punishable with fine which shall not be less than ₹ 1 lakh but which may extend to ₹ 3 lakh

Question 29.
A company shall, after the completion of the buy-back, file with the ROC and the SEBI a return relating to the buy-back in Form No. SH-11 with in ………… from the date of completion of buy-back.
(A) 10 days
(B) 30 days
(C) 60 days
(D) 90 days
(B) 30 days

Question 30.
Which of the following penalty is attracted for officers of the company if there is default in provisions of Section 68 relating to buy back of shares
(A) Every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to 3 years or with fine which shall not be less than ₹ 1 lakh but which may extend to ₹ 3 lakh or with both.
(B) Every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to 5 years or with fine which shall not be less than ₹ 2 lakh but which may extend to ₹ 5 lakh or with both.
(C) Every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to 2 years or with fine which shall not be less than ₹ 1 lakh but which may extend to ₹ 2 lakh or with both.
(D) Every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to 5 years or with fine which shall not be less than ₹ 5 lakh but which may extend to ₹ 25 lakh or with both.
(A) Every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to 3 years or with fine which shall not be less than ₹ 1 lakh but which may extend to ₹ 3 lakh or with both.

Question 31.
As per Section 70 of the Companies Act, 2013, the buy-back is not prohibited, if the various defaults mentioned in that section is remedied and a period of has lapsed after such default ceased to subsist.
(A) 1 year
(B) 3 years
(C) 2 years
(D) 6 months
(C) 2 years

Question 32.
Which of the following is objective of buy back of equity shares
(1) To improve earnings per share (EPS)
(2) To increase the sales of the company
(3) To prevent unwelcome takeover bids.
(4) To improve liquidity ratio.
Select the correct answer from the options given below.
(A) (2) & (3)
(B) (1) & (3)
(C) (1), (3) & (4)
(D) (1), (2), (3) & (4)
(B) (1) & (3)

Question 33.
Which of the following statement is true
(A) Partly paid-up shares can be brought back by the companies
(B) No company shall directly or indirectly pin-chase its own shares or other specified securities if a default is made by the company in the repayment of deposits interest payment thereon.
(C) The offer for buy-back shall remain open to the securities holders for a period not less than 5 days and not exceeding 10 days.
(D) The company can buy back up to 25% of paid-up share capital and free reserve in any financial year.
(B) No company shall directly or indirectly pin-chase its own shares or other specified securities if a default is made by the company in the repayment of deposits interest payment thereon.

Question 34.
Which of the following method for buyback of shares is not allowed
(A) Book building process
(B) Open market through stock exchange
(C) Negotiated deals
(D) All of the above
(C) Negotiated deals

Question 35.
Where a company purchases its own shares out of free reserves or securities premium account, a sum equal to the nominal value of the shares so purchased shall be transferred to the …………
(A) Capital Reserve Account
(B) General Reserve Account
(C) Capital Redemption Reserve Account
(D) Equity Shares Redemption Account
(C) Capital Redemption Reserve Account

Question 36.
Which of the following reserve can be used for buy back of equity shares?
(A) Statutory Reserve
(B) Dividend Equalization Reserve
(C) Capital Redemption Reserve
(D) All of the above
(B) Dividend Equalization Reserve

Question 37.
A company cannot buy-back its shares from any person through negotiated deals or through spot transactions or through any -……………..
(A) Spot transactions
(B) Negotiated deals
(C) Private arrangement
(D) All of the above
(D) All of the above

Question 38.
Which of the following reserve can be used for buy back of equity shares?
(A) Dividend Redemption Reserve (pref-erence shares)
(B) Statutory Reserve
(C) Capital Redemption Reserve
(D) None of the above
(D) None of the above

Question 39.
Assertion (A):
The buy-back may be misused by the corporate entities at the cost of innocent investor.
Reason (R):
The promoters, before the buy-back may understate the earning by manipulating accounting policies in respect of depreciation, valuation of inventories etc. which would lead to a fall in the quoted prices of shares and the promoter would buy then at low quotations.
Select the correct answer from the options given below.
(A) A is true but R is false
(B) A is false but R is true
(C) A and R both are true but R is not correct explanation of A.
(D) A and R both are true and R is correct explanation of A
(D) A and R both are true and R is correct explanation of A

Question 40.
Which of the following entry will be passed for payment of amount due on buy back if equity shares
(A) Credit to Equity Shareholders A/c and debit to Bank A/c
(B) Credit to Equity Share Capital A/c and debit to Bank A/c
(C) Debit to Equity Shareholders A/c and credit to Bank A/c
(D) Debit to CRR A/c and credit to Bank A/c
(C) Debit to Equity Shareholders A/c and credit to Bank A/c

Question 41.
Paid-up equity shares capital of ABC Ltd. is ₹ 50,00,000 having face value of₹ 10 each fully paid-up. Other details:
General Reserve = ₹ 15,00,000 Capital Redemption Reserve = ₹ 4,00,000 Profit & Loss Account = ₹ 1,00,000 Statutory reserve = ₹ 6,40,000 Securities Premium = ₹ 1,00,000
The board of directors passed resolution in board meeting to buy back maximum number of shares as allowed by law. Maximum No. of shares that can be brought back = ?
(A) 55,000 shares
(B) 67,000 shares
(C) 1,25,000 shares
(D) 78,000 shares
(B) 67,000 shares
Where buy-back is up to 10% of paid-up capital and free reserves of the company
Board resolution is sufficient..
(50,00,000 + 15,00,000 + 1,00,000 + 1,00,000) × 10% = 6,70,000
6,70,000/10 = 67,000

Question 42.
N Ltd. had 90,000 equity shares of ₹ 100 each, fully paid up. The company decided to buy back 10% shares at par by the issue of sufficient number of preference shares. Company do not have any reserves. How much preference shares are required to be issued if new preference shares are to be issued at ₹ 10 each?
(A) 9,00,000 shares
(B) 90,000 shares
(C) 1,00,000 shares
(D) 1,20,000 shares
(B) 90,000 shares
Amount due to equity shareholders on buyback = 90,000 × 100 × 10% = 9,00,000
No. of shares to be issued  $$=\frac{\text { Amount payable to equity shareholder }}{\text { Face value per share }}=\frac{9,00,000}{10}=90,000$$

Question 43.
S Ltd. decided to buy back 2,000 equity shares of ₹ 100 each at a premium of 10%. For the purpose of redemption, the company issued 15,000 10% Preference shares of ₹ 10 each at a premium’of 20% per share. The company has sufficient balance in profit & loss account. At the time of buy back shares, the amount to be transferred by the company to the Capital Redemption Reserve Account = ?
(A) ₹ 20,000
(B) ₹ 50,000
(C) ₹ 1,50,000
(D) ₹ 2,00,000
(A) ₹ 20,000

Note 1:
It is noted that in case of redemption of preference shares securities premium balance cannot be utilized for repayment of ‘preference share capital’ amount. However, this condition is not applicable for buy back of equity shares because as per Section 68 of the Companies Act, 2013, Securities Premium has to be treated as ‘free reserve’. Thus, securities premium collected on issue of shares can be utilized in repayment of Equity Capital Amount.

Note 2:
Total amount collected on issue of preference shares is ₹ 1,80,000 whereas amount payable on buy back of shares is ₹ 2,00,000. Thus, shortage of ₹ 20,000 will be taken from profit & loss account because Section 68 of the Companies Act, 2013 allows buy back – (I) Out of proceeds of fresh issue of securities (II) Free Reserve and (III) Securities premium.

Note 3:
As per Section 69, where a company purchases its own shares out of free reserves or securities premium account, a sum equal to the nominal value of the shares so purchased shall be transferred to the Capital Redemption Reserve (CRR) account. Since in given case amount of ₹ 20,000 utilized from profit & loss account a sum of ₹ 20,000 must be transferred to Capital redemption amount.

Note 4:
It not possible to give such detailed explanation for each MCQ so students are advised to apply all the provisions of the Section 68 and Section 69 before arriving k any conclusion as to final answer of any MCQ. However, relevant calculations are given in short for other MCQs in this chapter.

Question 44.
During the year 2018-2019, T Ltd. buy back 20,000 equity shares of ₹ 100 each at a premium of 5%. During the year 2018-2019, as the company did not have sufficient cash resources to buy back equity shares, it issued 1,00,000, 12% Preference shares of ₹ 10 each at a premium of 15%. The company has sufficient balance in general reserve. At the time of buy back equity shares, the amount to be transferred to capital redemption reserve = ?
(A) ₹ 10,00,000
(B) ₹ 9,50,000
(C) ₹ 12,00,000
(D) ₹ 15,00,000
(B) ₹ 9,50,000

Question 45.
Equity shares amounting to ₹ 2,00,000 are brought back at a premium of 5%, by issue of preference shares amounting to ₹1,00,000 at a premium of 10%. The amount to be transferred to capital redemption reserve = ?
(A) ₹ 1,00,000
(B) ₹ 90,000
(C) ₹ 1,50,000
(D) ₹ 50,000
(A) ₹ 1,00,000

Question 46.
ABC Ltd. has paid-up equity capital of 10,00,000 equity shares of ₹ 10 each fully paid-up. Position of reserves is as follows:
General Reserve = ₹ 30,00,000 Profit & Loss Account = ₹ 2,00,000 Securities Premium = ₹ 2,00,000
Company decided to buy back 2,00,000 equity shares of ₹ 10 each at 25% premium. For this purpose, the company sold the entire investments at ₹ 12,00,000 (book value ₹ 10,00,000) and made a fresh issue of 10% preference shares of ₹ 100 each to the extent minimum after utilizing the securities premium account and half of general reserve. How much preference shares must be issued by the company so that provisions of the Companies Act, 2013 get complied
(A) 20,000 preference shares
(B) 40,000 preference shares
(C) 1,000 preference shares
(D) 4,000 preference shares
(A) 20,000 preference shares

Question 47.
Following are the extract of balance sheet of Light Co. Ltd.
Equity Shares of ₹ 10 each — 10,00,000
Reserves — 7,50,000
Profit & Loss Account — 2,80,000
Bank — 9,10,000
Company brought back 15,000 shares at ₹ 40 each. The transaction in respect of buyback was financed by sale of 2/3rd of non-trade investment for ₹ 5,90,000.
Amount to be transferred to capital redemption reserve = ?
(A) ₹ 6,00,000
(B) ₹ 1,00,000
(C) ₹ 4,50,000
(D) ₹ 1,50,000
(D) ₹ 1,50,000
15,000 × 10= 1,50,000

Question 48.
Following are the extract of balance sheet of Tube Ltd.
Equity Shares of ₹ 10 each — ₹ 20,00,000
Reserves — 15,00,000
Profit & Loss Account — 5,60,000
Bank — 18,20,000
Company brought back 30,000 shares at ₹ 40 each. The transaction in respect of buyback was financed by sale of 2/3rd of non-trade investment for ₹ 11,80,000.
Bank balance after buyback will be –
(A) ₹ 12,00,000
(B) ₹ 16,00,000
(C) ₹ 14,50,000
(D) ₹ 18,00,000
(D) ₹ 18,00,000

Question 49.
Following information is available from the audited balance sheet of TH Ltd.:
Equity Shares Capital (3,000 lakh Shares of ₹ 10 each) — 30,000
General Reserve — 10,000
Secured Loans — 40,000
Unsecured Loans — 22,000
Compute the maximum limit up to which buy back is permitted in the financial year 2018-2019.
(A) 800 lakh shares
(B) 600 lakh shares
(C) 500 lakh shares
(D) 400 lakh shares
(B) 600 lakh shares
(1) The buy-back of equity shares in any financial year should not exceed 25% of its total paid-up equity capital in that financial Year. [₹ 30,000 × 25% = ₹ 7,500]
(2) 25% of the aggregate of paid-up capital and free reserves of the company.
[(30,000 + 3,000 + 10,000) × 25% = ₹ 10,750]
(3) The ratio of the aggregate of secured and unsecured debts owed by the company after buy-back is not more than twice the paid-up capital and its free reserves. Let the amount of buy-back be ‘x’
$$\frac{\text { Secured }+\text { Unsecured Debts }}{\text { Paid-up Capital + Free Reserves }} \leq 2$$
(1) The buy-back of equity shares in any financial year should not exceed 25% of its total paid-up equity capital in that financial year. [4,95,000 × 25% = 1,23,750]
(2) 25% of the aggregate of paid-up capital and free reserves of the company.
[(4,95,000 + 3,60,000 + 1,35,000 + 1,35,000) × 25% = 2,81,250]
(3) The ratio of the aggregate of secured and unsecured debts owed by the company after buy-back is not more than twice the paid-up capital and its free reserves.
As per Section 69, a sum equal to the nominal value of the share brought back shall be transferred to Capital Redemption Reserve (CRR).
Buy-back price = 25 × 120% = 30 (out of which ₹ 10 is nominal value and ₹ 20 is buy-back premium)
Let the nominal of amount shares to be buy-back be ‘x’.
$$\frac{\text { Secured }+\text { Unsecured Debts }}{\text { Paid-up Capital + Free Reserves }} \leq 2$$

Question 50.
X Ltd. proposes to buy back ₹ 6,00,000 equity capital at 50% premium by issuing 2,0 14% preference shares of ₹ 100 each at 20% premium. It has balance in Securities Premium, General Reserve and P & L A/c of ₹ 3,50,000; ₹ 9,30,000 & ₹ 48,000 respectively. For this purpose, it sold all of its investments of ₹ 1,48,000 for ₹ 1,50,000. The company wants to keep balance of 6,00,000 in general reserve. What are the balances of
(ii) Capital Redemption Reserve A/ c after giving effect to above transactions
(A) ₹ 90,000 ₹ 4,00,000
(B) ₹ 4,00,000 ₹ 90,000
(C) ₹ 70,000 ₹ 4,00,000
(D) ₹ 4,00,000 ₹ 70,000
(C) ₹ 70,000 ₹ 4,00,000

Question 51.
Board of directors of G Ltd. decided to buy back ₹ 4,50,000 equity share capital at a premium of 10%. Balance of General Reserve & Securities Premium are ₹ 1,00,000 & ₹ 5,000. It was decided to issue 12% redeemable preference shares of ₹ 10 each for the purpose of buy back of equity shares as minimum as possible. How much preference share are to be issued by the company to give effect to above transactions
(A) 39,000 preference shares
(B) 40,000 preference shares
(C) 26,000 preference shares
(D) 53,000 preference shares
(A) 39,000 preference shares

Question 52.
The balance appearing in the books of a company at the end of year were:
CRR A/c = ₹ 50,000
Revaluation reserve = ₹ 20,000
Profit & Loss A/c (Dr.) = ₹ 10,000
Maximum amount available for bonus shares will be …………
(A) ₹ 50,000
(B) ₹ 55,000
(C) ₹ 45,000
(D) ₹ 57,000
(B) ₹ 55,000

Question 53.
A Ltd. has equity share capital of ₹ 4,95,000 (₹ 10 each fully paid-up). Details of its reserves & loan funds are given below:
General Reserve — 3,60,000
Profit & Loss Account — 1,35,000
Export Profit Reserve — 2,70,000
Loan Funds — 18,00,000
Market price is ₹ 25 per share. The company wants to buy back maximum number of shares that are allowed under the Companies Act, 2013 at price 20% higher than its market price. Export Profit Reserve is created to satisfy provisions of the Income Tax Act, 1961 requirements.
No. of shares to be brought back= ?
(A) 12,375 Equity shares
(B) 5,625 Equity shares
(C) 28,125 Equity shares
(D) 8,750 Equity shares
(B) 5,625 Equity shares
(1) The buy-back of equity shares in any financial year should not exceed 25% of its total paid-up equity capital in that financial year.
[4,95,000 × 25% = 1,23,750]

(2) 25% of the aggregate of paid-up capital and free reserves of the company.
[(4,95,000 + 3,60,000 + 1,35,000 + 1,35,000) × 25% = 2,81,250]

(3) The ratio of the aggregate of secured and unsecured debts owed by the company after buy-back is not more than twice the paid-up capital and its free reserves.
As per Section 69, a sum equal to the nominal value of the share brought back shall be transferred to Capital Redemption Reserve (CRR).

Buy-back price = 25 × 120% = 30 (out of which ₹ 10 is nominal value and ₹ 20 is buy-back premium)

Let the nominal of amount shares to be buy-back be ‘x’. (Equal amount will be transferred to CRR)

Since, out of the above three calculations minimum amount is ₹ 56,250; hence buy-back of equity shares having nominal amount of ₹ 56,250 is possible.
No. of shares = 56,250/10 = 5,625 shares.

Question 54.
BABA Ltd. has equity share capital of ₹ 6,60,000 (₹ 10 each fully paid-up). Details of its reserves & loan funds are given below:
General Reserve — 4,80,000
Profit & Loss Account — 1,60,000
Loan Funds — 30,00,000
Market price is ₹ 25 per share. The company wants to buy back maximum number of shares that are allowed under the Companies Act, 2013 at price 20% higher than its market price.
No. of shares to be brought back= ?
(A) 1,650 Equity shares
(B) 37,500 Equity shares
(C) Nil
(D) 625 Equity shares
(C) Nil

(1) The buy-back of equity shares in any financial year should not exceed 25% of its total paid-up equity capital in that financial year. [6,60,000 × 25% = 1,65,000]

(2) 25% of the aggregate of paid-up capital and free reserves of the company. [(6,60,000 + 4,80,000 + 2,00,000 + 1,60,000) × 25% = 3,75,000]

(3) The ratio of the aggregate of secured and unsecured debts owed by the company after buy-back is not more than twice the paid-up capital and its free reserves.
As per Section 69, a sum equal to the nominal value of the share brought back shall be transferred to Capital Redemption Reserve (CRR).

Buy-back price = 25 × 120% = 30 (out of which ₹ 10 is nominal value and 120 is buy-back premium) Let the nominal of amount shares to be buy-back be ‘x (Equal amount will be transferred to CRR)

x = 0 (since value is zero hence amount of nominal value of shares that can be buyback will be taken zero)
Since, out of the above three calculation minimum amount is zero; hence buy-back is not possible if the company has loan funds of ₹ 30,00,000.

Question 55.
ZPA Ltd. has equity share capital of – ₹ 13,20,000 (₹ 10 each fully paid-up). Details of its reserves & loan funds are given below:
General Reserve — 9,60,000
Profit & Loss Account — 3,20,000
Loan Funds — 12,00,000
The company wants to buy back maximum number of shares that are allowed under the Companies Act, 2013 at price of ₹ 25.
No. of shares to be brought back=
(A) 68,571 equity shares
(B) 75,000 equity shares
(C) 33,000 equity shares
(D) 47,000 equity shares
(C) 33,000 equity shares

(1) The buy-back of equity shares in any financial year should not exceed 25%
of its total paid-up equity capital in that financial year.
[13,20,000 × 25% = 3,30,000]

(2) 25% of the aggregate of paid-up capital and free reserves of the company.
[(13,20,000 + 9,60,000 + 4,00,000 + 3,20,000) × 25% = 7,50,000]

(3) The ratio of the aggregate of secured and unsecured debts owed by the company after buy-back is not more than twice the paid-up capital and its free reserves.
As per Section 69, a sum equal to the nominal value of the share bought back shall be transferred to Capital Redemption Reserve (CRR).

Buy-back price is ₹ 25 (out of which 110 is nominal value and ₹ 15 is buy back premium)

Let the nominal of amount shares to be buy-back be V. (Equal amount will be transferred to CRR)

x = 6,85,714 say 6,85,710 (rounded up)
Since, out of the above three calculation minimum amount is ₹ 3,30,000; hence buy-back of equity shares having nominal amount of ₹ 3,30,000 is possible.
No. of shares = 3,30,000/10 = 33,000 shares.