MCQ on Buy Back of Shares [Multiple Choice Questions and Answers]

MCQ on buy back of shares

MCQ on Buy Back of Shares
 [Multiple Choice Questions and Answers]

In this page, you will get MCQ on Buy Back of Shares which are useful for AHSEC and CBSE Class 12, B. Com and Various Professional Exams Like CA/CMA and CS.

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

Introduction to Buy Back of Shares

Buy-back means the repurchase of its own shares by the company. When a company has substantial cash resources, it may like to buy its own shares from the market, particularly when the prevailing rate of its shares in the market is much lower that the book value.
A Company cannot buy back its shares if it defaulted in:
a) in repayment of deposit or interest payable thereon,
b) redemption of debentures, or preference shares or
c) payment of dividend, if declared, to all shareholders.
d) repayment of any term loan or interest payable thereon to any financial institution or bank;

MCQ on Buy Back of Shares
Choose the correct answer to the following questions from the given alternatives:

1. As per section 68 of the Companies Act, 2013, a company can buy back its own shares out of:

a) Free 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.

Ans: d) All of the above.

2. Maximum buy back limit in any year is ______ of total paid up equity capital and free reserves of the company.

a) 25%.

b) 10%.

c) 20%.

d) No limit.

Ans: b) 10%.

3. Maximum buy back limit in any year is ______ of total paid up equity capital.

a) 25%.

b) 10%.

c) 20%.

d) No limit.

Ans: a) 25%.

4. According to Sec. 68(5) of the Companies Act, 2013, the buyback 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.

Ans: 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.

Ans: 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.

Ans: d) All of the above.

7. 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.

Ans: b) Capital redemption reserve account (CRR).

8. 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.

Ans: c) Both of the above.

Also Read: Corporate Accounting MCQs Chapterwise

Issue of Shares

Issue and Redemption of Debentures

Bonus and Rights Shares

Buy Back of Shares

Redemption of Preference Shares

Internal Reconstruction

External Reconstruction

Accounts of Holding Companies

Corporate Accounting 500 MCQs

9. For cancellation of shares at the time of buy back:

a) Equity share capital a/c is debited and shareholders 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.

Ans: b) Shareholders account is debited and Equity share capital account is credited.

10. 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.

Ans: c) Shares can be partly paid up.

11. When a company completes buyback of its shares, it cannot further issue same kind of shares within a period of:

a) 6 moths

b) 1 year

c) 2 years

d) 5 years

Ans: a) 6 months

12. Which of the following is not a free reserve for the purpose of buyback of shares?

a) General reserves

b) Surplus

c) Dividend equalisation reserves

d) Revaluation reserve

Ans: d) Revaluation reserve

13. The company should open which account with bank to provide fund for buyback?

a) Demat Account

b) Bank Account with merchant banker

c) Escrow Account

d) None of the above

Ans: c) Escrow Account

14. Before buyback the company shall file with the Registrar and SEBI:

a) A declaration of solvency

b) A declaration of Insolvency

c) A prospectus

d) MOA and AOA

Ans: a) A declaration of solvency

15. The debt equity ratio after buyback must not be more than:

a) 1:1

b) 2:1

c) 1:2

d) 5:2

Ans: b) 2:1

16. Which of the following are methods of buy back?

a) Open market offer

b) Tender offer

c) Both a & b

c) None of the above

Ans: c) Both a & b

17. Which of the following reserves are not available for buy back?

a) Capital redemption reserve

b) Share forfeited account

c) Profit prior to incorporation

d) all of the above

Ans: d) all of the above

18. Which of the following is not a condition of buy-back of securities?

a) Both fully and partly paid-up securities can be bought back.

b) Buy-back must be authorised by the articles of association.

c) Buy-back must be authorised by passing a special resolution in general meeting.

d) Buy-back should be completed within 1 year from the state of passing of special resolution.

Ans: a) Both fully and partly paid-up securities can be bought back.

19. The amount paid in excess of face value of shares bought back should be debited to:

a) General reserve account

b) Securities premium reserve account

c) Buy back premium account

d) Capital redemption reserve account

Ans: c) Buy back premium account

20. Buy back premium is adjusted with:

a) Securities premium reserve

b) General reserve account

c) Surplus account

d) All of the above

Ans: d) All of the above

21. 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

Ans: d) All of the above

22. 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

Ans: Ans: d) All of the above

23. For cancellation of shares at the time of buy back:

a) Equity share capital a/c is debited and shareholders 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

Ans: b) Shareholders account is debited and Equity share capital account is credited

24. 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

Ans: e) All of the above mentioned statements are correct

25. 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

d) Forfeited shares account

Ans: b) Capital redemption reserve account (CRR)

MCQ on Buy back of shares
State the following statements whether ‘true’ or ‘false’

1. Maximum one buy back is allowed in a period of 365 days.       True

2. A company cannot purchase its own shares.   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. Buy back of shares is allowed out of fresh issue of shares of the same kind.       False

6. The ratio of the debt owned by the company is not more than twice the capital and its free reserves after such buyback. True

7. Buying shares is the most common way to become member of the company. True

8. Partly paid-up shares can be bought back.        False

9. A company cannot buyback the shares issued to employees of the company under ESOP.   False

10. Buyback of shares can be made if there is no authorization in the article but with a special resolution to be passed in the general meeting. False

11. Surplus cash may be utilized by the company for buy-back and avoid the payment of dividend tax.      True

12. 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

13. Buy back must be authorised by its articles.                    True

14. A special resolution has been passed in the general meeting of the company authorising the buy-back.  True

15. No special resolution is necessary if buyback is or less than ten percent of the paid up capital and free reserves. True

16. Only fully paid-up share can be bought back.                               True

17. Buy back must be completed within 3 months from the date of passing of the special resolution or resolution passed by the board.     False, 12 Months

18. A company after buy back shall not make a further issue of the same kind of shares or other securities.          True

19. Price at which shares shall be bought back has to be determined by shareholders through a special resolution.  True

20. As per SEBI Guideline, Buy-back offer shall remain open for not less than 15 days and not more than 30 days.  True

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