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Redemption of Preference Shares Accounts MCQ

1. Preference shareholders are ______of the company

(a)    Creditors of the company

(b)    Customer of the company

(c)    Owner of the company

(d)    None of the above.

 Preference shareholders are Owner of the company. Hence option (c) is correct.

2. Redeemable preference shares can be redeemed

(a)    Only if they are fully paid

(b)    Even if they are partly paid

(c)    If they are paid not less than 50% of the nominal value of the shares

(d)    Only if they are issued at a premium.

Redeemable preference shares can be redeemed only if they are fully paid. Hence option (a) is correct.

3. Transfer to Capital Redemption Reserve A/c is allowed from

(a)    General Reserve A/c

(b)    Capital Reserve A/c

(c)    Share Premium A/c

(d)    All the above.

Transfer to Capital Redemption Reserve A/c is allowed from General Reserve A/c. Hence option (a) is correct.

4. Preference shares can be redeemed

(a)    Out of profits only

(b)    Out of proceeds of fresh issue only

(c)    Out of capital profit only

(d)    Out of proceeds of fresh issue and or profit otherwise available for distribution of dividend.

Preference shares can be redeemed Out of proceeds of fresh issue and or profit otherwise available for distribution of dividend. Hence option (d) is correct.

5. Shares having preferential right to dividend and repayment of capital are known as

(a)    Equity shares

(b)    Preferential shares

(c)    Differed shares

(d)    Right shares.

Shares having preferential right to dividend and repayment of capital are known as Preferential shares. Hence option (b) is correct.

6. If preference shares are redeemed at premium, such premium may be provided out of :

(a)-Share forfeiture A/c

(b)-Share Premium A/c

(c)-Proceeds of fresh issue of shares

(d)-Capital Redemption Reserve A/c.

If Preference shares are redeemed at premium, such premium may be provided out of Share Premium A/c. Hence option (b) is correct.

7. XYZ Co. Ltd. has to redeem 1,000 preference shares of Rs.100 each at 10% premium. It issues 5,000 equity shares of Rs.10 each at premium 10%. Amount transferred from General Reserve to capital redemption reserve will be.

(a)    Rs.25,000

(b)    Rs.50,000

(c)    Rs.1,00,000

(d)    Rs.1,50,000

Amount to be transferred to Capital redemption reserve will beNominal Amount of Prefshares to be redeemed – value of shares issued = (1000 x 100) – (5000 x 10) = 100000 – 50000 = 50000 (share premium money received on issue of eq, shares cannot be used for redemption of Pref Shares. Premium on Redemption of Pref shares has to be provided from P & L a/c or Securities Prem a/c). Hence option (b) is correct.

8. Redeemable preference share of Rs.1,00,000 are redeemed at a premium of 5% for which purpose fresh equity capital of Rs.40,000 is issued at par. What amount should be transferred to Capital Redemption Reserve A/c?

(a)    Nil

(b)    Rs.1,05,000

(c)    Rs.65,000

(d)    Rs.60,000

 Amount to be transferred to Capital redemption reserve will beNominal Amount of Prefshares to be redeemed – value of shares issued = 1,00,000 – 40000= 60000. Premium on redemption of debentures has to be provided from P & L a/c or Securities Prem a/c. Hence option (d) is correct.

9. Redeemable preference shares Rs.50,000 redeemable at 5% premium, new issue of shares Rs.30,000 at premium of 10%. What amount should be transferred to Capital Redemption Reserve A/c?

(a)    Rs.20,000

(b)    Rs.23,000

(c)    Rs.22,000

(d)    Rs.25,000

Amount to be transferred to Capital redemption reserve will beNominal Amount of Prefshares to be redeemed – value of shares issued = 50000 – 30000= 20000. Premium on redemption of shares has to be provided from P & L a/c or Securities Prem a/c. (share premium money received on issue of equity shares cannot be used for redemption of Pref Shares). Hence option (a) is correct.

10. Preference shares can be redeemed:

(a)    Only if they are fully paid

(b)    Even if they are partly paid up

(c)    After getting the permission form the court only

(d)    All of the above

Preference shares can be redeemed only if they are fully paid. Hence option (a) is correct.

11. Redeemable preference shares of Rs.1,00,000 are redeemed at par for which fresh equity shares of Rs.80,000 are issued at discount of 10%. The amount transferred to Capital Redemption Reserve will be:

(a)    Rs.20,000

(b)    Rs.28,000

(c)    Rs.1,00,000

(d)    Rs.80,000

Amount to be transferred to CRR= 1,00,000 – (80000 – 8000) = 1,00,000 – 72000 = 28000. Hence option (b) is correct.

12. A preference share which carry the right of participating in the surplus left after paying equity dividend is called:

(a)    Convertible preference share              

(b)    Cumulative preference shares            

(c)    Participating preference shares          

(d)    All of the above                                

A preference share carrying rights of participating in the surplus left after paying equity dividend is called Participating Preference Shares. Hence option (c) is correct.

13. Redeemable preference shares must be redeemed within:

(a)    5 years

(b)    10 years

(c)    15 years

(d)    20 years

Redeemable preference shares must be redeemed within 20 years. Hence option (d) is correct.

14. Preference shares may be redeemed out of

(a)    Proceeds of Debentures

(b)    Proceeds of new issue of shares

(c)    Out of divisible profits

(d)    Both (b) and (c).

Preference may be redeemed out of proceeds of new issue of shares or out of divisible profits or from both. Hence option (d) is correct.

15. When redemption of preference shares is made out of profits, such profit is transferred to

(a)    Capital Reserve

(b)    General Reserve

(c)    Capital Redemption Reserve

(d)    Either (b) or (c).

Profit used for redemption of preference shares should be transferred to Capital redemption Reserve. Hence option (c) is correct.

16. 4,000 preference shares of Rs.100 each are due for redemption at per. Company is proposing to issue 10,000 Equity shares of Rs.10 at par for the purpose of redemption. What amount will be transferred to Capital Redemption Reserve A/c out of profits?

(a)    Rs.4,00,000

(b)    Rs.3,00,000

(c)    Rs.1,00,000

(d)    Rs.5,00,000

Preference shares may be redeemed either out of new issue of shares or out of profits. In this case, total par value required for redemption is Rs.4,00,000. Out of this Rs.1,00,000 will be received from new issue of shares. Therefore, balance of Rs.3,00,000 will be redeemed out of profits and transferred to Capital Redemption Reserve Account. Hence option (b) is correct.

17. A company wants to redeem its 2,000 preference shares of Rs.100 each at per. Company has a balance in General Reserve Rs.50,000 and Profit and Loss A/c Rs.40,000. Company wants to issue equity shares of Rs.10 at a premium of 10%. How many equity shares should be issued for the purpose?

(a)    10,000

(b)    9,000

(c)    11,000

(d)    12,000

Rs.2,00,000 is required for redemption. Out of this Rs.90,000 (Rs.50,000 + Rs.40,000) will be redeemed out of profits and balance Rs.1,10,000 will be redeemed out of new issue of shares. Premium received on new issue cannot be taken into consideration for redeeming par value of preference shares. New issue will be (1,10,000/10) = 11000. Hence option (c) is correct.