Important Questions and Answers for Class 12 Accountancy Chapter 1 Accounting for Share Capital 2025-26

1. Multiple choice questions.

Q1. Which of the following is NOT a feature of a company?

• (a) Separate Legal Entity
• (b) Limited Liability
• (c) Perpetual Succession
• (d) Unlimited Liability

Answer: (d) Unlimited Liability

Q2. When a company issues shares at an amount more than their face value, the excess is called:

• (a) Capital Reserve
• (b) Securities Premium
• (c) Calls in Advance
• (d) Share Application

Answer: (b) Securities Premium

Q3. Minimum subscription refers to:

• (a) Minimum amount of shares a holder must buy
• (b) Minimum amount a company must receive to proceed with allotment
• (c) Maximum shares issued
• (d) Nominal value of share

Answer: (b) Minimum amount a company must receive to proceed with allotment

Q4. In case of share forfeiture, the share capital account is:

• (a) Credited
• (b) Debited
• (c) Not affected
• (d) Transferred to Reserve

Answer: (b) Debited

Q5. Which shares provide preferential right to dividend?

• (a) Equity Shares
• (b) Preference Shares
• (c) Debentures
• (d) Cumulative Shares

Answer: (b) Preference Shares

2. Very Short Answer (VSA).

Q1. What is the meaning of 'authorised capital'?

Answer: Authorised capital is the maximum amount of share capital that a company is legally allowed to issue as per its Memorandum of Association.

Q2. Define ‘share premium’.

Answer: Share premium is the amount received by a company over and above the face value of shares when shares are issued at a price higher than their par value.

Q3. What does ‘calls in arrears’ mean?

Answer: Calls in arrears refers to the amount that is not paid by shareholders when called or demanded by the company.

Q4. State the minimum subscription percentage required as per Companies Act.

Answer: At least 90% of the issued amount of shares must be subscribed for and received as minimum subscription.

Q5. What is meant by forfeiture of shares?

Answer: Forfeiture of shares means cancellation of shares by a company due to non-payment of call money by a shareholder.

3. Short Answer Questions.

Q1. Distinguish between equity shares and preference shares.

Answer: Equity shares do not provide preferential rights to dividend or repayment of capital, whereas preference shares offer priority in dividend payment and capital return on winding up. Equity shareholders bear more risk but may receive higher earnings if profits increase.

Q2. Explain the accounting treatment when shares are issued at a premium.

Answer: When shares are issued at a premium, the excess amount over face value is credited to 'Securities Premium Reserve Account.' The premium can only be used for specific purposes as per Companies Act, 2013, such as issuing bonus shares or writing off expenses.

Q3. A company issued 20,000 shares of ₹10 each, payable ₹3 on application, ₹4 on allotment and ₹3 on first & final call. All money was duly received except from Mr. X holding 500 shares, who did not pay the first & final call. Pass journal entry for the amount received on call.

Answer:

1. First & Final Call due = 20,000 shares × ₹3 = ₹60,000
2. Amount not received = 500 shares × ₹3 = ₹1,500
3. Amount received = ₹60,000 - ₹1,500 = ₹58,500
4. Journal Entry: Bank A/c Dr. ₹58,500
   Calls in Arrears A/c Dr. ₹1,500
      To Share First & Final Call A/c ₹60,000

Q4. What is 'pro-rata allotment' and why is it made?

Answer: Pro-rata allotment means shares are allotted in proportion to shares applied when applications exceed shares offered (oversubscription). It ensures fairness, so all applicants get a proportionate number of shares rather than some getting all and others none.

Q5. State two uses of securities premium as per the Companies Act, 2013.

Answer: Securities premium can be utilised to: (i) issue fully paid bonus shares to shareholders, and (ii) write off preliminary expenses of the company, as prescribed under the Companies Act, 2013.

4. True or False Questions.

Q1. Paid-up capital can never exceed authorized capital.

Answer: True.

Q2. Preference shareholders have voting rights in all company meetings.

Answer: False.

Q3. Reserve capital can be called up only in the event of winding up.

Answer: True.

Q4. Application money can be less than 5% of nominal value of share.

Answer: False.

Q5. Calls in advance is not a part of share capital.

Answer: True.

3. Fill in the Blanks Questions.

Q1. ____________ capital is the amount of capital that a company is allowed to issue as per its Memorandum of Association.

Answer: Authorised

Q2. Shares issued for consideration other than cash may be issued to ____________.

Answer: Vendors

Q3. When shares are issued at a price below their nominal value, it is called issue of shares at ____________.

Answer: Discount

Q4. Minimum subscription must be at least ____________% of the total issue as per Companies Act, 2013.

Answer: 90

Q5. The capital which a company decides to keep uncalled unless the company is wound up is called ____________.

Answer: Reserve capital

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