TRB PG Assistant - Issues of shares, bonus issues, sweat equity shares, employee stock option scheme, employee stock purchase scheme, buy back of shares, redemption of preference shares, issue and redemption of debentures, underwriting of securities Question Bank with Options

1. When a company redeems its preference shares by issuing new equity shares, the Share Capital Account is credited with:

A) The face value of preference shares redeemed

B) The face value of new equity shares issued

C) The premium paid on redemption

D) The amount transferred to CRR

2. The purpose of 'vesting period' in ESOS is to:

A) Allow employees to sell their vested options immediately

B) Ensure employees remain with the company for a specified duration before exercising options

C) Determine the exercise price of the options

D) Calculate the total number of options granted

3. What is the primary obligation of an underwriter in a 'full underwriting' contract?

A) To subscribe to any shares not taken up by the public

B) To market the shares to the public

C) To provide financial advice to the company

D) To manage the company's share register

4. Which of the following is a reserve that can be used for the redemption of preference shares?

A) Securities Premium Account

B) Revaluation Reserve

C) General Reserve

D) Dividend Equalization Reserve

5. Underwriting is a contract of:

A) Guarantee

B) Indemnity

C) Agency

D) Lease

6. What is a 'letter of offer' in the context of buy-back of shares?

A) A document offering shares to the public

B) A document sent to existing shareholders detailing the terms of the buy-back offer

C) A document issued by the underwriter

D) A document for debenture holders

7. When debentures are redeemed out of profits, the amount used for redemption is transferred from:

A) Profit and Loss Appropriation Account to Debenture Redemption Reserve

B) Debenture Redemption Reserve to Profit and Loss Appropriation Account

C) Profit and Loss Appropriation Account to General Reserve

D) General Reserve to Profit and Loss Appropriation Account

8. The premium on redemption of preference shares, if any, must be provided for out of:

A) Capital Redemption Reserve

B) Securities Premium Account or Profits

C) General Reserve

D) Revaluation Reserve

9. A buy-back of shares can be done through:

A) Tender offer

B) Open market purchases

C) Both (a) and (b)

D) Issuing new shares

10. In an Employee Stock Purchase Scheme (ESPS), employees are typically allowed to buy shares at:

A) A price significantly higher than the market price

B) The prevailing market price or a slight discount to it

C) A price determined by the board of directors annually

D) The face value of the shares

11. Sweat equity shares are issued for what kind of contribution?

A) Monetary investment

B) Intellectual property rights or value addition

C) Provision of loans

D) Purchase of company's products

12. When a company issues bonus shares, what is the effect on its reserves?

A) Reserves increase

B) Reserves decrease

C) Reserves remain unchanged

D) Reserves are converted into liabilities

13. What is the purpose of the 'minimum subscription' clause in a prospectus?

A) To ensure the company has enough capital to commence business

B) To protect investors by ensuring the company does not proceed without adequate funding

C) To set a target for share price appreciation

D) To determine the dividend payout ratio

14. The commission paid to an underwriter is usually calculated as a percentage of:

A) The total issue size

B) The number of shares subscribed by the public

C) The number of shares taken up by the underwriter

D) The face value of the shares underwritten

15. What is a 'convertible debenture'?

A) A debenture that can be redeemed at a premium

B) A debenture that can be converted into equity shares at the option of the holder or the company

C) A debenture that is redeemable only at maturity

D) A debenture that is secured by company assets

16. Debentures can be secured or unsecured. Secured debentures are:

A) Not backed by any specific assets

B) Backed by a charge on the company's assets

C) Redeemable at the company's discretion

D) Convertible into equity shares

17. If a company fails to redeem its preference shares within the stipulated period, the preference shareholders become:

A) Creditors of the company

B) Ordinary shareholders with voting rights

C) Entitled to a higher rate of dividend

D) Liable for the company's losses

18. When preference shares are redeemed out of the proceeds of a fresh issue of shares, the amount received from the fresh issue is credited to:

A) Capital Redemption Reserve

B) Share Capital Account

C) Securities Premium Account

D) General Reserve

19. Which of the following is a consequence of a company buying back its own shares?

A) Increase in earnings per share (EPS)

B) Dilution of ownership

C) Increase in the company's debt-to-equity ratio

D) Reduced dividend payout ratio

20. What is the main objective of an Employee Stock Option Scheme (ESOS)?

A) To provide immediate cash benefits to employees

B) To align employees' interests with those of the shareholders and retain talent

C) To reduce the company's debt burden

D) To distribute profits among employees

21. The Companies Act, 2013 permits the issue of shares at a discount only in specific circumstances, such as:

A) To the general public

B) To employees

C) To holders of existing shares in a specific class (sweat equity)

D) To existing shareholders in proportion to their holdings (bonus)

22. When a company issues shares at a discount, the discount allowed is debited to:

A) Share Capital Account

B) Securities Premium Account

C) Discount on Issue of Shares Account

D) Profit and Loss Appropriation Account

23. What is 'stags' in the context of share issuance?

A) Long-term investors

B) Speculators who apply for shares with the intention of selling them quickly at a profit

C) Employees receiving stock options

D) Debenture holders

24. If an underwriter buys shares that the public does not subscribe to, this is called:

A) Oversubscription

B) Undersubscription

C) Firm underwriting

D) Partial underwriting

25. What is a 'firm allotment' in the context of underwriting?

A) Allotment of shares to the public

B) Allotment of shares to the underwriter as a part of their agreement

C) Allotment of shares to employees

D) Allotment of bonus shares

26. An underwriter agrees to purchase any shares or debentures that are not subscribed by the public for a commission, which is known as:

A) Brokerage

B) Underwriting commission

C) Management fee

D) Service charge

27. What is underwriting of securities?

A) The process of issuing bonus shares

B) The process of a third party guaranteeing to buy unsubscribed shares

C) The process of redeeming preference shares

D) The process of employees exercising stock options

28. Under the Companies Act, 2013, the creation of DRR is mandatory for the redemption of redeemable debentures, except for:

A) Private companies

B) Public companies

C) Companies issuing debentures to secure loans from banks

D) Companies issuing debentures on a rights basis

29. Which of the following is NOT a method of debenture redemption?

A) Lump sum payment at maturity

B) Draw lots for redemption

C) Conversion into equity shares

D) Issuing new equity shares at par to redeem debentures

30. What is a Debenture Redemption Reserve (DRR)?

A) A reserve created for issuing debentures

B) A reserve created for meeting the redemption of debentures

C) A reserve for paying interest on debentures

D) A reserve for buying back shares

31. When debentures are issued at a premium, the premium amount is credited to:

A) Debenture Interest Account

B) Securities Premium Account

C) Debenture Redemption Reserve

D) General Reserve

32. Debentures are typically issued with:

A) Voting rights

B) A fixed rate of interest

C) A claim on profits after equity dividends

D) No maturity date

33. What is a debenture?

A) A type of equity share

B) A loan certificate issued by a company

C) A right to vote in company meetings

D) A claim on the company's assets without any interest obligation

34. Preference shares can be redeemed out of:

A) Profits available for dividend distribution

B) Proceeds of a fresh issue of shares

C) Both (a) and (b)

D) Revaluation Reserve

35. For the redemption of preference shares, a company must create a reserve known as:

A) General Reserve

B) Capital Reserve

C) Capital Redemption Reserve (CRR)

D) Dividend Equalization Reserve

36. Which section of the Companies Act, 2013 governs the redemption of preference shares?

A) Section 55

B) Section 58

C) Section 60

D) Section 61

37. Redemption of preference shares means:

A) Issuing new preference shares

B) Buying back preference shares

C) Converting preference shares into equity shares

D) Paying back the capital invested by preference shareholders

38. What is the maximum limit for buy-back of shares as a percentage of total paid-up share capital and free reserves?

A) 10%

B) 25%

C) 50%

D) 75%

39. Which of the following is a valid source for buy-back of shares according to the Companies Act, 2013?

A) Proceeds of an earlier issue of shares

B) Free reserves and securities premium account

C) 50% of paid-up share capital

D) Current year's profits

40. When a company buys back its own shares, what is the impact on its equity share capital?

A) Increases

B) Decreases

C) Remains the same

D) Can increase or decrease depending on the issue price

41. What is the primary difference between ESOS and Employee Stock Purchase Scheme (ESPS)?

A) ESOS offers a right to buy, while ESPS offers shares directly at a discount.

B) ESOS is for directors only, while ESPS is for all employees.

C) ESOS involves a predetermined price, while ESPS allows purchase at market price.

D) There is no significant difference between ESOS and ESPS.

42. Under ESOS, the predetermined price at which employees can buy shares is known as:

A) Market price

B) Face value

C) Exercise price or Grant price

D) Book value

43. Which of the following is a key characteristic of Employee Stock Option Scheme (ESOS)?

A) Employees are given shares directly at a discount

B) Employees are granted the right, but not the obligation, to buy shares at a predetermined price

C) The company issues bonus shares to employees

D) Employees can purchase shares at the prevailing market price

44. What are sweat equity shares?

A) Shares issued to the public at a discount

B) Shares issued to employees or directors at a discount or for consideration other than cash

C) Shares issued in lieu of preference shares

D) Shares issued to secure loans

45. Bonus shares can be issued out of which of the following sources?

A) Revaluation reserves

B) Capital redemption reserve

C) Profit and loss account and securities premium account

D) Current year's profits only

46. Which section of the Companies Act, 2013 deals with the issue of bonus shares?

A) Section 53

B) Section 62

C) Section 63

D) Section 64

47. What is the minimum subscription that a company must receive before it can proceed with the allotment of shares?

A) 50% of the issue size

B) 75% of the issue size

C) 90% of the issue size

D) 100% of the issue size

48. When a company issues shares at a price higher than their face value, the excess amount is credited to which account?

A) Share Capital Account

B) Profit and Loss Account

C) Securities Premium Account

D) General Reserve Account

49. What is the primary purpose of issuing shares?

A) To increase debt financing

B) To raise capital for the company

C) To reduce the number of owners

D) To pay dividends to existing shareholders

Issues of shares, bonus issues, sweat equity shares, employee stock option scheme, employee stock purchase scheme, buy back of shares, redemption of preference shares, issue and redemption of debentures, underwriting of securities - Question Bank