Issue of Right & Bonus Shares – Corporate and Management Accounting MCQ

Going through the Issue of Right & Bonus Shares – Corporate and Management Accounting CS Executive MCQ Questions with Answers you can quickly revise the concepts.

Issue of Right & Bonus Shares – Corporate and Management Accounting MCQs

Question 1.
Which of the following section of the Companies Act, 2013 deals with provisions relating to right issue of shares?
(A) Section 60
(B) Section 62
(C) Section 64
(D) Section 68
Answer:
(B) Section 62

Question 2.
Provisions relating to right issue of shares as contained in Section 62 of the Companies Act, 2013 applies to -…….
(A) Company not having share capital
(B) All companies
(C) Company having a share capital
(D) Both (A) and (C)
Answer:
(C) Company having a share capital

Question 3.
………… are shares issued by a company free of cost to its existing shareholders
(A) Right shares
(B) Bonus shares
(C) Stock options
(D) Warrants
Answer:
(B) Bonus shares

Question 4.
The offer for right shares shall be made by notice specifying the number of shares offered, time for accepting offer which may be minimum and maximum
(A) 3 days; 5 days
(B) 5 days; 10 days
(C) 10 days; 60 days
(D) 15 days; 30 days
Answer:
(D) 15 days; 30 days

Question 5.
Bonus shares are shares issued by a company free of cost to its existing shareholders on a pro rata basis out of:
(A) Free reserve
(B) Distributable profit
(C) General reserve
(D) Any of the above
Answer:
(D) Any of the above

Question 6.
If offer for right shares is not accepted within period specified then -…….
(A) It shall be deemed to have been accepted
(B) Company must keep shares in abeyance
(C) It shall be deemed to have been declined
(D) Can later be accepted by the share-holders
Answer:
(C) It shall be deemed to have been declined

Question 7.
Right shares can be offered by the companies to existing shareholders by passing -………..
(A) Special Resolution
(B) Board Resolution
(C) Ordinary Resolution
(D) Extraordinary Resolution
Answer:
(C) Ordinary Resolution

Question 8.
Which of the following section of the Companies Act. 2013 deals with provisions relating to bonus issue of shares?
(A) Section 63
(B) Section 65
(C) Section 67
(D) Section 69
Answer:
(A) Section 63

Question 9.
Right shares can be offered by the companies to employees under a scheme of employees stock option by passing and complying with prescribed conditions.
(A) Extraordinary Resolution
(B) Special Resolution
(C) Board Resolution
(D) Ordinary Resolution
Answer:
(B) Special Resolution

Question 10.
Match the following:
Issue of Right & Bonus Shares – Corporate and Management Accounting MCQ 1
Answer:
(c)

Question 11.
A company cannot issue fully paid-up bonus shares to its members out of:
(A) Securities Premium
(B) Capital Redemption Reserve
(C) Revaluation Reserve
(D) All of the above
Answer:
(C) Revaluation Reserve

Question 12.
Right shares can be offered by the companies to persons other than existing shareholders or employees by passing a:
(A) Special Resolution
(B) Extraordinary Resolution
(C) Ordinary Resolution
(D) Board Resolution
Answer:
(A) Special Resolution

Question 13.
If company makes bonus issue at 2:3 then it means –
(A) For every two shares three bonus shares will be allotted
(B) For every three shares two bonus shares will be allotted
(C) For every five shares three bonus shares will be allotted
(D) For every five shares two bonus shares will be allotted
Answer:
(B) For every three shares two bonus shares will be allotted

Question 14.
The notice relating to offer for right issue shall be dispatched through –
(A) Registered Post
(B) Speed Post
(C) Electronic Mode
(D) Any of the above
Answer:
(D) Any of the above

Question 15.
Which of the following can be used for issuing bonus shares?
(A) Capital Redemption Reserve
(B) Securities Premium Account
(C) Profit and Loss Account
(D) Any of the above
Answer:
(D) Any of the above

Question 16.
The notice relating to offer for right issue shall be dispatched through registered post or speed post or through electronic mode to all the existing shareholders at least before the opening of the issue.
(A) 3 days
(B) 5 days
(C) 7 days
(D) 10 days
Answer:
(A) 3 days

Question 17.
Value of the right = ?
(A) Market value plus average price of the share
(B) Market value less average price of the share
(C) Market value multiplied by adjustment factor
(D) Market value less average price of the share multiplied by adjustment factor
Answer:
(B) Market value less average price of the share

Question 18.
Which of the following statement is true if company issues bonus shares?
(A) Bonus share is an income.
(B) Total market value comes down after bonus issue.
(C) Paid-up share capital increases with the issue of bonus shares.
(D) Fund flow is affected adversely due to bonus issue.
Answer:
(C) Paid-up share capital increases with the issue of bonus shares.

Question 19.
Bonus issue must be authorized –
(A) By the board of directors
(B) Article of association of the company
(C) Shareholders by ordinary resolution
(D) All of the above
Answer:
(D) All of the above

Question 20.
Which of the following can be utilized for issue of bonus shares?
1. Balance of profits & loss account
2. Capital Reserve
3. Dividend Equalization Fund
4. Development Rebate Reserve
5. Profit Prior to Incorporation
Select the correct answer from the options given below –
(A) 1, 3 and 5 only
(B) 2 and 4 only
(C) 1 and 3 only
(D) 1, 2, 3 and 5 only
Answer:
(C) 1 and 3 only

Question 21.
Bonus issue can be made on -………..
(A) Partly paid-up shares
(B) Fully paid-up shares
(C) Either (A) or (B)
(D) Both (A) and (B)
Answer:
(B) Fully paid-up shares

Question 22.
Which of the following condition of Section 63 is required to be complied by the company before making bonus issue?
(A) Bonus issue is authorized by its articles
(B) Company has not defaulted in payment of interest or principal in respect of fixed deposits or debt securities issued by it
(C) Company has not defaulted in payment of statutory dues of the employees like PF contribution, gratuity and bonus
(D) All of the above
Answer:
(D) All of the above

Question 23.
Which of the following statement is false?
(A) The bonus shares shall not be issued in lieu of dividend.
(B) The company which has once announced the decision of its Board recommending a bonus issue, can withdraw the same.
(C) In case of bonus issue there is no cash flow.
(D) Issue of bonus shares does not affect the market value of the company.
Answer:
(B) The company which has once announced the decision of its Board recommending a bonus issue, can withdraw the same.

Question 24.
Which of the following is correct journal entry for issue of bonus shares?
(A) Debit the equity share capital account and credit the securities premium account
(B) Debit the bonus to shareholders account and credit the general reserve account
(C) Debit the general reserve account and credit the equity share capital account
(D) Debit the capital reserve account and credit the equity share capital account.
Answer:
(C) Debit the general reserve account and credit the equity share capital account

Question 25.
For which one or more of the following reasons could a balance in the share premium be applied?
(a) To issue bonus shares.
(b) For distribution to shareholders as dividend.
(c) To write down the value of assets, particularly when they are impaired.
(d) To write off expenses of and commission on issuing the same shares
Select the correct answer from the options given below –
(A) (c) & (d)
(B) (a) & (b)
(C) (b) & (c)
(D) (a) & (d)
Answer:
(D) (a) & (d)

Question 26.
Following was the Balance Sheet of BCC Ltd. as on 31st December 2019:
Equity Shares of ₹ 10 each — ₹ 8,00,000
Securities Premium — ₹ 2,80,000
General Reserve — ₹ 1,40,000
Profit & Loss Account —  ₹ 2,40,000
Sundry Creditors — ₹ 1,80,000
Company issued 3 bonus shares for every 4 fully paid-up shares. Securities prertium account will be utilized first and then General Reserve. To issue bonus shares Profit & Loss A/c will be debited by –
(A) ₹ 2,40,000
(B) ₹ 1,80,000
(C) ₹ 2,00,000 .
(D) ₹ 2,20,000
Answer:
(B) ₹ 1,80,000
Amount required for bonus issue = 8,00,000 × \(\frac{3}{4}\) = 6,00,000
P&L A/c balance to be used for bonus = 6,00,000 – 2,80,000 – 1,40,000 = 1,80,000

Question 27.
A company has decided to increase its existing share capital by making rights issue to the existing shareholders in the proportion of 1 new share for every 2 old shares held. You are required to calculate the value of the right if the market value of share at the time of announcement of right issue is ₹ 576. The company has decided to give one share of ₹ 100 each at a premium of ₹ 188 each.
(A) ₹ 348
(B) ₹ 174
(C) ₹ 96
(D) ₹ 82
Answer:
(C) ₹ 96
Issue of Right & Bonus Shares – Corporate and Management Accounting MCQ 5
Question 28.
Following are the extracts from the draft Balance Sheet of OMG Ltd.:
Equity shares Capital (₹ 10 each) — 8,00,000
Securities premium — 1,00,000
General reserve — 2,50,000
Profit and loss account — 1,50,000
A resolution was passed declaring 3 bonus shares for 5 shares held. Use minimum securities premium balance. To issue bonus shares Securities Premium A/c will be debited by –
(A) ₹ 1,50,000
(B) ₹ 90,000
(C) ₹ 1,20,000
(D) ₹ 80,000
Answer:
(D) ₹ 80,000

Question 29.
A Ltd. has 20,000 Equity Shares of ₹ 10 each. Balance of Profit & Loss Account is ₹ 1,40,000. It has issued 6% Debentures in the past of ₹ 1,20,000.
At the annual general meeting it was resolved that:
(i) To pay a dividend of 10% in cash. Corporate dividend tax rate is 17%.
(ii) To issue 1 bonus share for every 4 shares held after 1 month of right issue.
(iii) To give existing shareholders right to purchase one ₹ 10 share for every 4 shares prior to bonus issue.
(iv) To repay debentures at a premium of 5%.
Balance of Profit & Loss A/c after giving effect to above transactions will be –
(A) ₹ 48,100
(B) ₹ 54,100
(C) ₹ 52,000
(D) ₹ 65,100
Answer:
(A) ₹ 48,100
Issue of Right & Bonus Shares – Corporate and Management Accounting MCQ 3

Question 30.
Following are the extracts from the draft Balance Sheet of IPL Ltd.:
Authorized share capital ?
1,50,000 Equity Shares (₹ 10 each) — 15,00,000
Issued & Paid-up Capital ₹ 7.50 each called-up & paid-up — 6,00,000
Reserves:
Capital Redemption Reserve — 1,50,000
Plant Revaluation Reserve — 20,000
Securities Premium — 1,50,000
Development Rebate Reserve — 2,30,000
Investment Allowance Reserve — 2,50,000
General Reserve — 3,00,000
The company wanted to issue bonus shares to its shareholders @ one share for every two shares held. All the shareholders paid the call due on their shares. Use general reserve minimum. To issue bonus shares General Reserve A/c will be debited by –
(A) ₹ 1,50,000
(B) ₹ 1,00,000
(C) ₹ 2,00,000
(D) ₹ 80,000
Answer:
(B) ₹ 1,00,000

Question 31.
Anuj Ltd. had an accumulated amount of general reserve of ₹ 5,00,000 and Securities Premium ? 70,000. The directors of Anuj Ltd. decided to declare bonus shares out of the general reserve and to utilize the dividend in the following manner:
(i) To make 10,000 partly paid shares of ₹ 10 each paid-up at ₹ 6 each, as fully paid-up.
(ii) To distribute 4 fully paid bonus shares of ₹ 10 each at ₹ 12 each, for 5 fully paid existing 20,000 shares of ₹ 10 each. What are the balances of General Reserve and Securities Premium Accounts after giving effect to above transactions?
(A) ₹ 2,68,000 & ₹ 1,02,000
(B) ₹ 3,08,000 & ₹ 38,000
(C) ₹ 4,60,000 & ₹ 1,02,000
(D) ₹ 2,68,000 & ₹ 38,000
Answer:
(A) ₹ 2,68,000 & ₹ 1,02,000
Issue of Right & Bonus Shares – Corporate and Management Accounting MCQ 4
General reserve balance = 5,00,000 – 40,000 – 1,92,000 = 2,68,000
Securities premium balance = 70,000 + 32,000 = 1,02,000

Question 32.
F Ltd. is planning to raise funds by making rights issue of equity shares to part finance its expansion. The existing equity share capital of the company is ₹ 120 lakh and the market value is ₹ 135 per share. The company offered to its shareholders the right to buy 2 shares at ₹ 36 each for every 5 shares held. You are required to calculate value of rights.
(A) 22.89
(B) 28.92
(C) 29.28
(D) 28.29
Answers:
(D) 28.29
\(\begin{aligned}
&\frac{\text { Right shares }}{\text { Total shares after right issue }}\\
\end{aligned}\) × (Cum rights price – New issue price)
\(\begin{gathered}2 \\\hline 7\end{gathered}\) X (135 – 36) = 28.29