MCQs on Internal Reconstruction and Capital ReductionMultiple Choice Questions and Answers 2024
In this page, you will get MCQs on Internal Reconstruction and Capital Reduction asked in B. Com and Various Professional Exams Like CA/CMA and CS.
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Meaning of Internal Reconstruction
Internal reconstruction means a recourse undertaken to make necessary changes in the capital structure of a company without liquidating the existing company. In internal reconstruction neither the existing company is liquidated, nor is a new company incorporated. It is a scheme in which efforts are made to bail out the company from losses and put it in profitable position.
Meaning of Reduction of Capital
Reduction of share capital is regarded as one of the process of decreasing company’s share capital. The Reduction of Share Capital means reduction of issued, subscribed and paid up share capital of the company. In simple words it can be regarded as ‘Cancellation of Uncalled Capital’ i.e. part of subscribed share capital.
State whether the following statements are “True” or “False”:
1. According to sec. 61 of the companies act, 2013, a limited company
can increase, sub-divide or consolidate all or part of its existing share if
authorised by its articles of
association. True
2. Reduction of capital is unlawful except when sanctioned by the
court. True
3. A company must pass a special resolution for reduction of capital. True
4. The word “And reduced” cannot be added to the name of the company if
no direction has been given by the
court. True
5. Alteration of share capital can be affected by passing an ordinary
resolution. True
6. Cancellation of unissued capital is also a case of capital
reduction. True
7. Redemption of preference shares is a case of capital
reduction. False
8. Only unsuccessful companies undertake capital
reduction. True
9. No journal entry is required for cancellation of unissued share
capital. True
10. Consent of creditors is not required if capital reduction involves
the writing off of paid up capital lost or not represented by available
assets. True
11. A company is free to reduce or extinguish the uncalled liability of
its members. False
12. Consent of creditors is required if capital reduction involves
diminution of liability regarding uncalled capital or return of paid up
capital. True
13. Forfeiture and Surrender of shares is a case of capital
reduction. False
14. Under Sec. 64 of the Companies Act, 2013 the company shall give
notice of the alternation of capital to the registrar within 45
days. False, 30 days
15. The word “And Reduced” is added to the name of the company for such
period as the court deems fit. True
Multiple Choice Questions:
16. In case of sub-division of share capital the total number of shares:
(i) Increases.
(ii) Decreases.
(iii) Does not change.
Ans: (i) Increases.
17. If the shares of smaller denomination-are converted into the shares
of higher denomination without changing the total amount of share capital, then
it is a case of:
(i) Consolidation of share capital.
(ii) Sub-division of share capital.
(iii) Decrease in unissued share capital.
Ans: (i) Consolidation of share
capital.
18. When a company converts its equity shares into the capital stock,
then the account to be credited is:
(i) Equity share capital account.
(ii) Equity capital stock account.
(iii) No entry is required
Ans: (ii) Equity capital stock
account.
19. A Ltd. with a share capital of 10,000 equity shares of Rs. 10 each
fully paid decides to repay Rs. 5 per share thus making each share of Rs. 5
fully paid. It is a case of:
(i) Reducing share capital by returning the excess capital.
(ii) Reducing the liability on account of uncalled capital.
(iii) Reducing the paid-up capital.
Ans: (i) Reducing share capital by
returning the excess capital.
20. For writing off the accumulated Josses under the scheme of capital
reduction, we debit:
(i) Share capital account.
(ii) Accumulated losses account.
(iii) Capital reduction account.
Ans: (iii) Capital reduction account.
21. The term “Internal Reconstruction” means:
(i) Reduction of Share Capital.
(ii) Variation of Shareholder’s right.
(iii) Alternation of share capital.
(iv) All of the above.
Ans: (iv) All of the above.
22. If there is any balance in the capital reduction account after
writing off all the accumulated losses, then the same is transferred to:
(i) Share capital account.
(ii) Capital reserve account.
(iii) General reserve account.
Ans: (ii) Capital reserve account.
23. A company has issued capital of 10,000 equity shares of Rs. 10 each
fully paid. It decides to convert its capital into 20,000 equity shares of Rs.
5 each. It is a case of
(i) Consolidation of share capital.
(ii) Sub-division of share capital.
(iii) Decrease in unissued share capital.
Ans: (ii) Sub-division of share
capital.
24. If the creditors are willing to reduce their claims against the
company, (hen the amount of reduction in their claim will be transferred to
(i) Share capital account.
(ii) Creditors account.
(iii) Capital reduction account.
Ans: (iii) Capital reduction account.
25. Any loss on revaluation of the assets at the time of internal
reconstruction, will be charged from—
(i) Revaluation account.
(ii) Share capital account.
(iii) Capital reduction account.
Ans: (iii) Capital reduction account.
26. In which of the following cases, procedure of reduction of capital
is not called for:
(i) Redemption of preference shares.
(ii) Forfeitures of shares.
(iii) Surrender of shares or gift of shares.
(iv) All of the above.
Ans: (iv) All of the above.
27. In a scheme of reorganisation amount of shares surrendered by
shareholders is transferred to:
(i) Capital reduction account.
(ii) Shares surrendered account.
(iii) Capital reserve account.
(iv) Reserve capital account.
Ans: (ii) Shares surrendered account.
28. Amount sacrificed by shareholders are credited to:
(i) Capital reduction account.
(ii) Shares surrendered account.
(iii) Capital reserve account.
(iv) Reserve capital account.
Ans: (i) Capital reduction account.
Also Read: Corporate Accounting MCQs Chapterwise
Issue and Redemption of Debentures MCQs
Redemption of Preference Shares MCQs
Amalgamation and External Reconstruction MCQs
MCQs on Liquidation of Companies
29. To carry out capital reduction, permission is required from:
(i) The Competent Court.
(ii) Company law Board.
(iii) Central government.
(iv) SEBI.
Ans: (i) The
Competent Court.