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Saturday, September 12, 2020

MCQ - Buy Back of Shares | Multiple Choice Questions and Answers | Company Accounts | Corprorate Accounts | CMA MCQ

Buy Back of Shares Multiple Choice Questions and Answers (MCQ)
For B.Com/CA/CMA/CS Exam
State whether the following statements are true or false:
1. Buy back of shares is allowed out of fresh issue of shares of the same kind.                    False
2. Maximum one buy back is allowed in a period of 365 days.                      True
3. Declaration of solvency is required to be submitted to SEBI and Registrar before making buy back.      True
4. After buy back, further issue of same kind of shares or specified securities can be made within 24 months. False
5. Surplus cash may be utilized by the company for buy-back and avoid the payment of dividend tax.      True
6. Where a company purchases its own shares out of free reserves, then a sum equal to the nominal value of the share so purchased shall be transferred to the capital redemption reserve.         True
7. Buy back must be authorised by its articles.                    True
8. A special resolution has been passed in the general meeting of the company authorising the buy-back.            True
9. No special resolution is necessary if buyback is or less than ten percent of the paid up capital and free reserves. True
10. The ratio of the debt owed by the company is not more than twice the capital and its free reserves after such buy-back.            True
11. Only fully paid-up share can be bought back.                               True
12. Buy back must be completed within 3 months from the date of passing of the special resolution or resolution passed by the board.     False, 3 Months
13. A company after buy back shall not make a further issue of the same kind of shares or other securities.          True
14. Price at which shares shall be bought back has to be determined by shareholders through a special resolution.  True
15. As per SEBI Guideline, Buy-back offer shall remain open for not less than 15 days and not more than 30 days.  True
16. A company opting for buy back through the public offer or tender offer shall open an escrow Account.
Multiple Choice Questions and Answers
1. As per section 68 of the companies act, 2013, a company can buy back its own shares out of:
a.       Reserves which are available for distribution as dividend
b.      Securities premium account
c.       Proceeds of fresh issue of shares or other specified securities
d.      All of the above.
2. Which of the following statement is false?
a.       Buy back must be authorised by articles of company
b.      A special resolution must be passed for buy back.
c.       Shares can be partly paid up
d.      The ratio of debt owed by the company is not more than twice the capital and its free reserves after such buy back.
3. Maximum buy back limit in any year is _____of total paid up equity capital.
a.      25%
b.      10%
c.       20%
d.      No limit
4. According to sec. 68 (4), the buy-back can be made from:
a.       From the existing shareholders on a proportionate basis
b.      From open market
c.       From employee to whom shares are issued under stock option or sweat equity share
d.      All of the above
5. Further issue of shares after buy back can be made for:
a.       Conversion of debentures or preference shares into equity shares
b.      Bonus issue and Conversion of warrants
c.       Stock option schemes
d.      All of the above
6. A company cannot buy back its shares:
a.       Through its subsidiary
b.      Through investment or group of investment companies
c.       If default in repayment of debt or interest is subsist
d.      All of the above
7. Which of the following is not correct?
a.       Under the scheme of buy back, an escrow account is opened
b.      Escrow account guaranteed fulfillment of condition of buy back
c.       Cash deposited in escrow account is equal to 25% of the consideration payable if it is less than 100 crores plus 10% of the consideration exceeding 100 crores.
d.      None of the above
8. If shares are bought back out of free reserves then a sum equal to nominal value of the shares so bought back is transferred to:
a.       Capital reserve account
b.      Capital redemption reserve account (CRR)
c.       General reserve account
10. Premium payable on buy back is adjusted out of:
a.       Securities premium account
b.      Free reserves
c.       Both of the above
d.      None of the above
11. For cancellation of shares at the time of buy back:
a.       Equity share capital a/c is debited and share holders account is credited
b.      Shareholders account is debited and Equity share capital account is credited
c.       Equity share capital is debited and CRR is credited
d.      Equity share capital is debited and Shares Surrendered is credited

12. As per SEBI Guidelines, modes of Buy-Back: Buy-back is permissible: 
a.       from the existing security holders on a proportionate basis through the tender offer; or 
b.      from the open market through i. Book-building process, ii. stock exchange; 
c.       from odd lots, that is to say, where the lot of securities of a public company whose shares are listed on a recognized stock exchange is smaller than such marketable lot as may be specified by the stock exchange: or 
d.      by purchasing the securities issued to employees of the company pursuant to a scheme of stock option or sweat equity. 
e.       All of the above mentioned statements are correct
13. From the information given below calculated the equity share for buy back:
Equity share capital         =             1200000
Free reserves                    =             1800000
Securities Premium         =             600000
Debentures                        =             2500000
Creditors                             =             1100000
Ans: 750000
Debt equity ratio (after buy back) = Debt / Equity (must be 2:1 after buy back)
=> 2 = (2500000. + 1100000 creditors)/equity (After buy back)
=> Equity (after buy back) = 1800000
Amount of equity available for buy back = Equity before buy back – Equity after buy back
                                                                                = 3600000 – 1800000
                                                                                = 1800000
Amount of buy back permissible = 25% of equity capital and free reserves or amount available for buy back (Lower)
= 25% of 3000000 or 1800000
= 750000 or 1800000
= 750000

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