Accounting For Share And Debenture Capital

The life cycle of a company consists of various steps. The correct sequence of events in the formation and functioning of a company is as follows:

• (C) Promotion: The first step in the life of a company is promotion, where the idea for the company is conceived, and the necessary groundwork is laid. This includes identifying the business purpose, preparing the necessary documents, and finding potential investors.
• (B) Incorporation: Once the company is promoted, the next step is incorporation. Incorporation is the legal process of forming the company, which involves registering it with the relevant authorities, like the Registrar of Companies.
• (D) Floatation: After incorporation, the company floats its shares to raise capital from the public or investors. Floatation involves the issuance of shares and debentures, and it is done through public offerings.
• (A) Commencement of Business: After flotation, the company is now ready to begin its operations. The final step is the commencement of business, which marks the actual start of the company's activities.

Thus, the correct order of events is: (C), (B), (D), (A)

Oversubscription is a commonly encountered term in accountancy, especially in the context of issuing shares to the public. To understand oversubscription, it is essential to be familiar with the processes involved in issuing shares:

The company announces a certain number of shares to be issued, which is known as the "number of shares issued." Investors then apply to purchase these shares. The amount or number of shares for which the investors apply is termed as the "number of shares applied for."

In the scenario where oversubscription occurs, the number of shares applied for by the investors surpasses the number of shares that the company has issued. This results in a situation where there are more requests for shares than shares available from the issue.

Based on the given options, the correct scenario describing oversubscription is:

• Number of shares applied for is more than the number of shares issued

Understanding this concept is crucial for managing share allocations during an initial public offering (IPO) where companies need to devise methods to fairly distribute the available shares among a larger pool of applicants.

To solve the matching problem between List-I and List-II, we need to understand the definitions and relationships between the terms:

• Share Capital: This refers to the total value of the shares that a company issues. It is often tied to the capital that shareholders have agreed to pay the company but might not have fully paid yet, corresponding to the description of "Subscribed but not fully paid." Hence, matches with (III).
• Reserves and Surplus: These refer to the profits that are retained in the company or saved for future needs, commonly held in a sinking fund for specific purposes. Therefore, this matches with (IV).
• Reserve Capital: It is the portion of the uncalled share capital that a company calls upon in the event of winding up, which matches with (I).
• Current Liabilities: These include amounts owed by a company that are to be paid in the short-term, such as "Calls in advance," indicating early payments made by shareholders towards upcoming calls on their shareholdings. Hence, matches with (II).

The correct match is: (A) - (III), (B) - (IV), (C) - (I), (D) - (II)

In accountancy, when shares are forfeited due to non-payment, specific accounts need to be adjusted. Let's match each account from List-I with its proper description in List-II:

Explanation:

• Share Capital Account: When shares are forfeited, the Share Capital Account is affected by the entire called-up amount, regardless of the amount paid.
• Share Forfeited Account: Credited with any amount already received for the forfeited shares.
• Calls-in-arrears Account: Represents the outstanding amount not received on calls, credited for the unpaid portion.
• Securities Premium Account: Debited only if the premium amount hasn't been received fully, which does not affect any match in this scenario.

Correct Matching: (A) - (IV), (B) - (III), (C) - (II), (D) - (I)

When dealing with the issuance and redemption of debentures in accountancy, the operations typically proceed in the following sequence:

1. Issue of Debentures (C): This is the initial step where the company issues debentures to raise funds. Debentures are debt instruments used by a company to borrow money from investors.
2. Creation of Debenture Redemption Reserve (DRR) (B): After issuing debentures, the company is required to create a DRR to ensure that funds are reserved for the redemption of these debentures in the future. This reserve acts as a safeguard for investors.
3. Redemption Becomes Due (D): As the maturity period approaches, the company prepares to fulfill its obligation to repay the debenture holders. The redemption process includes ensuring that the necessary funds from the DRR are available.
4. Payment to Debenture-Holders (A): Finally, the company makes the actual payment to the debenture holders, fully settling the debt obligation.

Thus, the correct sequence is (C), (B), (D), (A).

In accountancy and corporate law, a company's ability to accept calls in advance is governed by specific rules and regulations outlined in key documents. The document that facilitates this authority is the Articles of Association. Here's why:

• Articles of Association: This document plays a crucial role in defining the management's powers within a company. It specifies how calls in advance can be accepted and authorized, outlining procedures and conditions under which these calls can be made by the company.
• Shareholders: These are owners of the company but cannot directly authorize calls in advance unless such power is explicitly provided in the Articles of Association.
• Board of Directors: While they manage the company’s day-to-day operations, their actions need to align with the Articles of Association and cannot unilaterally decide on accepting calls in advance if not supported by the Articles.
• Memorandum of Association: This document primarily defines the company's scope and objectives but does not typically address operational issues like calls in advance.

Therefore, the correct authority for accepting calls in advance is stipulated within the Articles of Association.

When a firm is dissolved, all its assets and liabilities are settled. The bank overdraft, being a liability, needs to be resolved. Here's how the process works:

During dissolution, all outstanding liabilities are paid off using available funds, and any remaining assets are realized to cover liabilities.

The Realisation Account is used to track the sale of assets and settlement of liabilities but is not typically where liabilities like a bank overdraft are transferred.

Liabilities such as a bank overdraft should be settled directly through the Bank Account in the firm's records.

Conclusion: The bank overdraft is transferred to the Bank Account during the dissolution process, as all liabilities must be cleared through this account to settle them effectively.

Therefore, the correct option is: Bank Account.

The question requires identifying which financial metrics are classified as profitability ratios. Let's define each option:

• Debt Equity Ratio: This measures a company's financial leverage by comparing total liabilities to shareholder equity. It's used to assess a company's financial structure, not its profitability.
• Return on Investment (ROI): This evaluates the efficiency of an investment or compares the efficiency of several investments. It measures profitability as a percentage of the initial investment cost.
• Price Earning Ratio: This ratio values a company by measuring its current share price relative to its per-share earnings. It's used to assess whether a company's stock price is appropriately valued and relates to profitability.
• Earnings per Share (EPS): Represents the portion of a company's profit allocated to each outstanding share of common stock, indicating how profitable a company is on a per-share basis.

Based on these definitions, Return on Investment (B), Price Earning Ratio (C), and Earnings per Share (D) are profitability ratios.

Thus, the correct answer is: (B), (C) and (D) only

Let's analyze each of the activities and match them with the correct category based on Cash Flow Activities:

• Income tax Paid (A): Income tax paid is considered an operating activity because it is directly related to the core operations of the business. Therefore, (A) matches with (I) Operating Activity.
• Dividend Received (B): Dividend received is considered an investing activity because it is related to the returns from investments. Therefore, (B) matches with (III) Investing Activity.
• Loan Repaid (C): Loan repayment is considered a financing activity because it relates to the capital structure of the company and its financial obligations. Therefore, (C) matches with (II) Financing Activity.
• Shares issued against Machinery (D): Issuing shares in exchange for machinery is a non-cash financing activity as it does not involve cash inflow or outflow. This is not considered a cash flow activity. Therefore, (D) matches with (IV) Not a Cash Flow Activity.

Thus, the correct answer is (A) : (A)-(I), (B)-(III), (C)-(II), (D)-(IV).

1. Total Loss on Realization: The total loss is 84,000.
2. Ratio of Distribution: Sam and Shafiq share the loss in the ratio of 4:3.
Total parts in the ratio = .
3. Loss Allocation to Shafiq: Shafiq's share of the loss: 4. Effect on Shafiq's Capital Account:
Since this is a loss, it will reduce Shafiq's capital account. Therefore, the amount to be transferred to Shafiq's capital account will be debited. Thus, the amount to be transferred to Shafiq's capital account is 36,000 to be debited.

In accountancy, when a company fails to gather the minimum subscription by the closure of the subscription list, a refund is initiated. The law provides that if the refund is delayed beyond the period of 8 days from the closure of the subscription list, the company is required to pay interest on the delayed amount.

To determine the correct interest rate applicable under such circumstances, we can refer to standard financial regulations and norms followed in the industry.

Based on the options provided:

From the given options, the correct interest rate is 15%. This rate is applied as a penalty for failing to refund within the stipulated 8-day grace period.

Order of Share Capital Types

Understanding the different types of share capital and their relationship to each other is crucial for interpreting a company's financial statements. These capital types represent different stages in the process of issuing and raising funds from shareholders.

The correct order of share capital types is as follows:

1. Authorised Capital: The maximum amount of share capital that a company is legally permitted to issue, as stated in its Memorandum of Association.
2. Issued Capital: The portion of the authorised capital that the company has actually offered to investors for subscription.
3. Subscribed Capital: The portion of the issued capital that investors have agreed to purchase.
4. Called-up Capital: The portion of the subscribed capital that the company has formally requested from shareholders to pay.
5. Paid-up Capital: The portion of the called-up capital that shareholders have actually paid to the company.

Correct Sequence

Therefore, the correct order is Authorised Capital → Issued Capital → Subscribed Capital → Called-up Capital → Paid-up Capital, making Option 3 the correct answer.

To find the amount transferred to the capital reserve when shares are reissued, we first need to analyze the details of the forfeited and reissued shares.

1. Original Issue Details:
Number of shares = 400
Face value per share = ₹50
Final call not paid per share = ₹10
Total amount unpaid = 400 shares × ₹10 = ₹4,000

2. Forfeiture Accounting:
Upon forfeiture, the amount received till the call = (Original face value - Unpaid call amount) per share
= ₹50 - ₹10 = ₹40 per share
Total amount received for forfeited shares before reissue = 400 shares × ₹40 = ₹16,000

3. Reissue Details:
Reissue price per share = ₹45
Total reissue amount = 400 shares × ₹45 = ₹18,000

4. Capital Reserve Calculation:
Total amount received before reissue + reissue amount = ₹16,000 + ₹18,000 = ₹34,000
Since the shares are reissued as fully paid up, the face value of reissued shares = 400 × ₹50 = ₹20,000.
Profit on reissue is the amount received - face value.
Profit = ₹34,000 - ₹20,000 = ₹14,000

Therefore, the amount transferred to the capital reserve is ₹14,000.