Questions and Answers of Corporate Accounting

In a scheme of capital reduction, any new liability to be provided for, such as arrears of preference dividend, must be met out of _______ account.
LMK Ltd. has an issued capital of ₹5,00,000 in shares of ₹100 each, on which ₹80 per share has been called up. The company now decided to reduce the share capital to share of ₹80 each fully
Reserves of the company can be utilised in meeting the accumulated _______ at the time of internal reconstruction.
ABC Ltd. has a paid-up share capital of ₹11,20,000 divided into 1,60,000 equity shares of ₹10 each, ₹7 per share paid-up. The company decided to reduce the paid-up capital to ₹6 per share,
Sub division of shares does not affect the amount of ________.
A company can convert fully paid ________ into stock and also reconvert ________ back into shares.
Cancellation of shares not taken up does not amount to ________ of capital.
A company can carry out ________ only after a court approves a scheme.
In order to provide fund for capital reduction scheme, the preference shareholders of ₹10,00,000 have agreed to take over the building for ₹8,00,000 in full settlement. Pass journal entry for the
Any debit balance in profit and loss account represents ________ and such losses will be written off as part of a capital organisation.
Rani Company Ltd., with a share capital of ₹20,000, equity shares of ₹10 each fully-paid, carries out by proper resolution, a sub-division into shares of ₹1 each. Pass journal entry to give the
Alteration of shares of smaller amount into shares of larger amount is called _______ of share capital.
On 31st March 2008, Rahim Ltd. passed resolution to sub-divide 50,000 equity shares of ₹100 each into shares of ₹50 each. Show the necessary journal entries to give effect to the above resolution.
Consent of ________ is not required if capital reduction involves the writing off of paid-up capital not represented by available assets.
After giving permission for capital reduction, the Court may order the use of the words _______ after the name of the company, for a specified period.
Lawrence Ltd. has 20,000 equity shares of ₹100 each, ₹80 per share called up and paid up. The company decided to pay off ₹30 per share of the paid-up capital and to reduce the ₹100 shares to
As a contribution towards capital reduction scheme, the 5% debenture holders, who were to receive ₹13,80,000 from the company, have agreed to reduce their claims to 50%, which is to be satisfied
What is Capital Reduction?
Explain the different kinds of Alteration of Share Capital, which do not require approval of a court of law.
Alteration of share capital is affected by a company if it is authorised by the: (a). Register of Members (b). Articles of Association (c). Minutes Book (d). Board of Directors
What is Internal Reconstruction?
True or False. Internal reconstruction refers to the reorganisation of capital structure of a company with the liquidation of the company.
What is Capital Reduction? State the provisions of the Companies Act in regard to the reduction of share capital.
The Capital Reduction Scheme can be implemented only after getting permission from: (a). SEBI Board (b). Controller of Capital Issues (c). Shareholders (d). Competent Court
True or False. In case the unissued share capital is to be decreased, the share capital account need not be cancelled.
What do you mean by Alteration of Share Capital’?
Explain the procedure to be followed for reducing share capital?
In case of sub-division of share capital, the total number of shares:(a). Do not change (b). Decreases (c). Increases (d). Increases disproportionately
True or False. A company is free to reduce or extinguish the uncalled liability of its members.
When a company converts its equity shares into the capital stock, then the account to be credited is: (a). Preference Share Capital A/c (b). Equity Share Capital A/c (c). Equity
Enumerate alterations of share capital, which do not require court approval.
True or False. A company is not allowed to convert its fully-paid shares into stock.
State the differences between Internal and External reconstruction.
After writing off of all accumulated losses and fictitious assets, the balance in capital reduction account should be transferred to: (a). Share Capital A/c (b). Capital Reserve
True or False. Reconstruction Account is an alternative term for Capital Reduction Account.
Explain the terms Consolidation and Sub-division of Shares?
Any gain on revaluation of the assets at the time of internal reconstruction will be credited to: (a). Capital Reserve A/c (b). General Reserve A/c (c). Surrendered Shares
How will you treat the increase and decrease in the value of assets in internal reconstruction?
Goodwill is an ____________ asset.
Give the definition of Goodwill.
Discuss the various methods of calculating Goodwill.
State which one of the following is not a main source for generating goodwill. (a). Providing easy credit facilities to customers (b). Location of the firm (c). Quality of the
True and False. Goodwill is an intangible asset.
Goodwill is the ____________ value of a firm’s anticipated excess earnings.
Why is Valuation of Goodwill needed?
Explain the factors affecting the value of goodwill of a company.
State which one of the following is not the main factor that would affect the value of goodwill. (a). Profitability (b). Size of the business (c). Normal rate of return (d).
True and False. Generally, goodwill is not recorded in the books of accounts.
While evaluating goodwill, the purchaser is keen with regard to future _________.
What are the important factors that affect goodwill?
Which one of the following items is to be excluded while computing capital employed? (a). All fixed assets (b). All current assets (c). Fictitious assets (d). Trade investments
Explain the treatment of Partly Paid-up Shares.
The rate of earnings, which the investors in general expect on their investment, refers to ____________.
How do we determine the Normal Rate of Return?
True and False. Goodwill means the capacity of a business to earn profit at the current accounting period.
What are the different classes of equity shares?
Which one of the following has to be included while calculating capital employed? (a). Patents, trademarks and copyrights (b). Discount in issue of shares and debentures (c). Provision
True and False. Income from non-trading assets should be excluded while evaluating goodwill.
Capital employed is a combination of fixed assets and net ____________.
What is Capital Employed?
Valuation of shares is not an exact science- it is a sophisticated form of approximation.” Comment.
State which of the following methods is not a recognised method for goodwill valuation. (a). Average profit method (b). Annuity method (c). Capitalisation method (d). None of
True and False. Profit of the past years earned by the firm is a major factor that affects the value of goodwill.
The average capital employed may be determined by either _______ or _______ approach or way.
While evaluating goodwill, why do we consider average capital employed?
Capital employed” represents the funds provided by: (a). Creditors (b). Debenture holders (c). Shareholders (d). All of these
True and False. While computing capital employed, fictitious assets should be included.
True and False. All current liabilities should be excluded while computing capital employed.
Goodwill is equal to average profit multiplied by ____________.
What do you understand by Number of Year’s Purchase?
The average rate of return of similar firms in the similar industry is to be taken as: (a). Normal rate of return (b). Expected rate of return (c). Average rate of return (d).
True and False. While computing average capital employed, provision for taxation should be treated as a part of profit.
____________ is referred to as the excess of expected average profit over normal profit.
What are the methods of calculating goodwill based on super profit?
State the following factor, which will not affect the value of shares. (a). Demand and supply of shares (b). Nature of company’s business (c). Profit-earning capacity of the
Explain Annuity Factor.
Normal profit is equal to average capital employed multiplied by ____________.
True and False. The amount of capital employed is directly proportional to the value of goodwill.
Under the Yield Method, the value of equity shares is calculated under the presumption that the company would be:(a). A going concern (b). Liquidated (c). Either (a) or (b) (d). None
True and False. If the trend is increase in profit every year, then, weighted average method can be used to calculate the future maintainable profit.
What do you mean by Normal Rate of Return?
The average super profit is capitalised at a certain ____________, under capitalisation of super profit method.
Calculate the amount of goodwill on the basis of three years’ purchase of the last five years’ average profits. The profits for the last five years are: Year Year I Year II Year III Year
True and False. Normal rate of return refers to the rate of profit normally earned by other similar firms in a particular industry.
Goodwill is equal to ____________ multiplied by annuity rate.
Calculate the amount of goodwill in the following case, on the basis of three years’ purchase of the last four years’ average profits. The profits and losses for the last four years are:
Give the factors that affect the Value of Shares.
True and False. The value of goodwill will be maximum by the use of capitalisation of super profit method.
The profits of Swami Vivekananda Ltd. for the last five years are as follows: Compute the value of goodwill of Swami Vivekananda Ltd. on the basis of 4 years’ of purchase of weighted average
Goodwill is equal to ____________ net tangible assets.
True and False. The proportion of liabilities and the capital affects the value of shares.
State the method to calculate the intrinsic value of shares.
It is essential to determine the value of the ____________ of the company, to ascertain the intrinsic value of shares.
While determining the value of shares, what are the factors to be considered in valuing the assets?
True and False. Investment should be valued at their book value while valuing the intrinsic value of shares.
Goodwill should be valued at ____________, while determining the value of shares.
True and False. While valuing the intrinsic value of shares by considering the assets value, the provision for bad and doubtful debts should not be taken into consideration.
Liabilities are valued at ____________.
True and False. The claim for surplus should not be deducted from the value of the assets in the case where the preference shares are participating preference shares.
The finished goods may be valued at ____________, while calculating the value of inventories.

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