MCQs on Internal Reconstruction and Capital Reduction [Multiple Choice Questions and Answers 2024]

MCQs on Internal Reconstruction and Capital Reduction
Multiple 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.

Also All the MCQs type Questions asked in Dibrugarh University, Gauahti University and Assam University Exams are included.

We update this page frequently to add new questions. Chapter wise Corporate Accounting MCQs are also included in this post.

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 of Shares MCQs

Issue and Redemption of Debentures MCQs

Bonus and Rights Shares MCQs

Buy Back of Shares MCQs

Redemption of Preference Shares MCQs

Internal Reconstruction MCQs

Amalgamation and External Reconstruction MCQs

Accounts of Holding Companies

MCQs on Liquidation of Companies

Corporate Accounting 500 MCQs

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.

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