Chapter 14: Company Accounts – I (JAIIB – Paper 3)

1. Which Act governs the formation and regulation of companies in India?

• A. Indian Partnership Act, 1932
• B. Banking Regulation Act, 1949
• C. Companies Act, 2013
• D. Contract Act, 1872

The Companies Act, 2013 is the primary legislation that regulates the incorporation, functioning, and management of companies in India.

2. A company whose articles restrict the transfer of shares and limits the number of members to 200 is called?

• A. Private Limited Company
• B. Public Limited Company
• C. Government Company
• D. Unlimited Company

As per the Companies Act, 2013, a Private Limited Company restricts share transfer and has a maximum of 200 members.

3. A Government Company is one in which not less than ______ of the paid-up capital is held by the Government.

• A. 26%
• B. 33%
• C. 40%
• D. 51%

A Government Company is one in which 51% or more of the paid-up capital is held by the Central Government, State Government(s), or jointly.

4. Which of the following is TRUE about a Public Limited Company?

• A. It cannot issue shares to the public
• B. It must have a minimum of 7 members
• C. Maximum members are restricted to 200
• D. It cannot be listed on a stock exchange

A Public Limited Company must have at least 7 members, and there is no maximum limit. It can invite public subscription and list on stock exchanges.

5. Which type of company is formed to promote commerce, art, science, or charity, and applies its profits for its objectives instead of distributing dividends?

• A. Producer Company
• B. Holding Company
• C. Section 8 Company
• D. Unlimited Company

Section 8 Companies are formed for charitable purposes and reinvest profits into their objectives instead of paying dividends.

6. In a partnership firm, the liability of partners is:

• A. Unlimited
• B. Limited to their capital contribution
• C. Limited to profits earned
• D. Nil, as they are not responsible for losses

In a partnership, partners have unlimited liability, which means their personal assets can be used to pay off business debts.

7. The liability of members in a Limited Liability Company (LLC) is restricted to:

• A. Partnership agreement
• B. Their personal assets
• C. The company’s profits
• D. The amount of capital contributed or unpaid shares

In an LLC, liability is limited to the capital contributed or unpaid share value. Members’ personal assets are not at risk.

8. Which of the following has a separate legal identity distinct from its owners?

• A. Partnership Firm
• B. Limited Liability Company
• C. Sole Proprietorship
• D. Hindu Undivided Family (HUF)

A company, including an LLC, is a separate legal entity. Partnerships and sole proprietorships are not legally distinct from their owners.

9. In case of death or insolvency of a partner, the partnership firm:

• A. Continues automatically
• B. Converts into a company
• C. Gets dissolved unless otherwise agreed
• D. Continues as a public company

A partnership dissolves on death/insolvency of a partner unless the partnership agreement specifies continuation.

10. Which of the following can raise capital by issuing shares to the public?

• A. Partnership Firm
• B. Limited Liability Company
• C. Sole Proprietorship
• D. Joint Venture

Only companies (LLCs, Public Limited Companies) can raise capital by issuing shares. Partnerships and sole proprietorships cannot.

11. The portion of share capital that a company is authorized by its Memorandum of Association to issue is called:

• A. Issued Capital
• B. Subscribed Capital
• C. Authorized Capital
• D. Paid-up Capital

Authorized capital is the maximum amount of share capital a company can issue as mentioned in its Memorandum of Association.

12. Capital that is actually offered to the public for subscription is called:

• A. Issued Capital
• B. Authorized Capital
• C. Subscribed Capital
• D. Paid-up Capital

Issued capital is that part of authorized capital which is actually offered to investors for subscription.

13. Out of the issued capital, the part for which applications have been received from investors is termed as:

• A. Paid-up Capital
• B. Authorized Capital
• C. Reserve Capital
• D. Subscribed Capital

Subscribed capital is the portion of issued capital for which investors have applied and agreed to purchase.

14. The part of subscribed capital that has actually been received by the company from shareholders is called:

• A. Subscribed Capital
• B. Paid-up Capital
• C. Authorized Capital
• D. Issued Capital

Paid-up capital is the amount of money the company has actually received from shareholders for the shares issued.

15. Which of the following is NOT a feature of Preference Shares?

• A. Preference in dividend payment
• B. Preference in repayment during winding up
• C. Voting rights in all company matters
• D. Fixed rate of dividend

Preference shareholders usually do not enjoy voting rights except in special circumstances, unlike equity shareholders.

16. When shares are issued at a price higher than their face value, the excess amount is credited to:

• A. General Reserve
• B. Securities Premium Account
• C. Profit and Loss Account
• D. Capital Redemption Reserve

The excess over face value received on issue of shares is transferred to Securities Premium Account under Section 52 of Companies Act, 2013.

17. Shares issued at a price lower than their face value are called:

• A. Bonus Shares
• B. Right Shares
• C. Sweat Equity Shares
• D. Shares issued at Discount

If shares are issued below face value, it is called issue at discount. Generally, Companies Act, 2013 prohibits this except in specific cases like sweat equity.

18. A company issued 10,000 equity shares of ₹10 each at par. The total share capital raised will be:

• A. ₹1,00,000
• B. ₹10,000
• C. ₹5,00,000
• D. ₹50,000

Total capital = Number of shares × Face value = 10,000 × ₹10 = ₹1,00,000.

19. Non-voting shares are usually issued to:

• A. Government Institutions
• B. Preference Shareholders
• C. Attract investors who seek dividends but not control
• D. Creditors of the company

Non-voting shares are issued to investors who prefer fixed returns but do not want or need voting rights in company decisions.

20. Which of the following statements is TRUE about Bonus Shares?

• A. They are issued for cash consideration
• B. They reduce paid-up capital of the company
• C. They are issued at a discount to face value
• D. They are issued to existing shareholders free of cost by capitalizing reserves

Bonus shares are issued to existing shareholders at no cost by converting the company's reserves into share capital.

21. When a shareholder fails to pay the allotment or call money due, the company may cancel his shares. This process is called:

• A. Surrender of shares
• B. Forfeiture of shares
• C. Buyback of shares
• D. Redemption of shares

Forfeiture of shares occurs when shareholders fail to pay due amounts and the company cancels their rights on such shares.

22. On forfeiture of shares, the Share Capital Account is debited with:

• A. The called-up value of shares forfeited
• B. The paid-up value of shares forfeited
• C. The face value of shares forfeited
• D. The premium on shares forfeited

At forfeiture, the Share Capital Account is debited with the called-up value of shares, as it represents cancellation of issued capital.

23. Amount already received from shareholders on forfeited shares is transferred to:

• A. General Reserve
• B. Profit and Loss Account
• C. Capital Redemption Reserve
• D. Forfeited Shares Account

Amount received from forfeited shares is transferred to Forfeited Shares Account until such shares are reissued or otherwise dealt with.

24. If forfeited shares are reissued at a discount, the discount allowed cannot exceed:

• A. Face value of shares
• B. Paid-up value of shares
• C. Amount forfeited on such shares
• D. Securities Premium Account balance

Discount on reissue of forfeited shares is restricted to the amount already forfeited, ensuring no capital loss to the company.

25. Profit on reissue of forfeited shares is transferred to:

• A. Capital Reserve
• B. Securities Premium Account
• C. Profit and Loss Account
• D. Share Capital Account

Profit on reissue of forfeited shares is treated as a capital profit and transferred to Capital Reserve.

26. Calls in Arrears represent:

• A. Excess amount received from shareholders
• B. Amount payable to debenture holders
• C. Amount not received from shareholders on calls made
• D. Discount allowed on reissue of shares

Calls in Arrears is the unpaid portion of share capital when a shareholder does not pay the money due on allotment or calls.

27. Interest on Calls in Arrears can be charged by the company at a rate of up to:

• A. 6% per annum
• B. 10% per annum
• C. 12% per annum
• D. 15% per annum

As per Table F of the Companies Act, the company can charge interest on calls in arrears at a rate not exceeding 10% p.a., unless Articles provide otherwise.

28. Calls in Advance represent:

• A. Calls not yet made by company
• B. Discount given to shareholders
• C. Excess capital issued
• D. Amount received from shareholders before it is called up

Calls in Advance is the amount received from shareholders for calls not yet due. It is shown under current liabilities until adjusted.

29. Interest payable by the company on Calls in Advance is up to:

• A. 12% per annum
• B. 10% per annum
• C. 8% per annum
• D. 6% per annum

The company may pay interest on calls in advance at a rate not exceeding 12% p.a., unless Articles provide for a lower rate.

30. Calls in Advance is shown in the Balance Sheet under:

• A. Reserves and Surplus
• B. Share Capital
• C. Other Current Liabilities
• D. Capital Reserve

Since Calls in Advance is not part of issued capital, it is shown as a liability under "Other Current Liabilities" until adjusted.