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NIOS Class 12 Accountancy Chapter 26 Company: An Introduction
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Company: An Introduction
Chapter: 26
| Module – 5: Company Accounts |
INTEXT QUESTIONS 26.1
I. Fill in the blanks with correct word/words relating to the characteristics of the company:
(i) A company is created by law. Hence a company is __________.
Ans: An artificial person.
(ii) An indivisible unit of capital of a company is called a _________.
Ans: Share.
(iii) _________ is the official signature of the company.
Ans: Common seal.
(iv) The shareholders elect some persons of their choice to manage the company’s affairs. It explains the _________ character of the company.
Ans: Representative.
II. Identify the correct statement by marking (√) and incorrect one by marking (×):
(i) The property of a company belongs to its shareholders.
Ans: ×.
(ii) The liability of every member of company is restricted to the face value of shares held by them.
Ans: √.
(iii) The members of a company cannot transfer their shares freely.
Ans: ×.
(iv) A company can enter into contract in its own name.
Ans: √.
INTEXT QUESTIONS 26.2
I. Fill in the blanks with correct words/figures given in brackets :
(i) The minimum number of members in a public limited company is _______(two, five, seven).
Ans: Seven.
(ii) A Government company is one in which not less than _______ of its paid up capital is held by government. (50%, 51%, 75%)
Ans: 51%.
(iii) The minimum paid up capital of a private limited company is _______ (rupees one lakh, rupees five lakh, rupees Ten lakh)
Ans: Rupees one lakh.
(iv) A foreign company is one which is incorporated _______ (In India, Outside India).
Ans: Outside India.
II. Name the type of company in the following cases :
(i) A company that imposes restriction on transfer of its shares by its Articles of Association.
Ans: Private company.
(ii) A company with a liability of its members limited to the extent of the amount unpaid on its shares.
Ans: Company limited by shares.
(iii) A company formed by a Special Act enacted by parliament or state legislature.
Ans: Statutory company.
(iv) A company not having any limit on the liability of its members.
Ans: Unlimited liability company.
(v) A company which controls another company.
Ans: Holding company.
INTEXT QUESTIONS 26.3
I. Fill in the blanks with suitable word/words.
(i) In a company, main source of finance is __________.
Ans: Share capital.
(ii) A _______ is an indivisible unit of capital.
Ans: Share.
(iii) _________ have the right to elect directors of the company.
Ans: Equity shareholders.
(iv) _______ have the preferential right as the refund of capital in case of winding up of company over ________.
Ans: Preference shareholders, Equity shareholders.
INTEXT QUESTIONS 26.4
I. Fill in the blanks with suitable word/words :
(i) Share capital is the amount of capital raised through ________.
Ans: Issue of shares.
(ii) Capital stated in the capital clause of the Memorandum of Association is called ________.
Ans: Authorised capital.
(iii) That part of the authourised capital which is offered to public for subscription is called ________.
Ans: Issued capital.
(iv) That part of the uncalled capital which is kept in reserve to be called only on winding up of the company is termed as _________.
Ans: Reserve capital.
II. Write ‘correct’ for correct statement and ‘wrong’ for incorrect statement for the following :
(i) Subscribed capital is either equal to or less than issued capital.
Ans: Correct.
(ii) Issued capital is stated in the capital clause of Memorandum of Association.
Ans: Wrong.
(iii) Liability of a shareholder is limited upto the face value of the share.
Ans: Correct.
(iv) Reserve capital can be called by the company at any time.
Ans: Wrong.
INTEXT QUESTIONS 26.5
State whether the following statements are true or false :
(i) A joint stock company is an artificial person created by law.
Ans: True.
(ii) The liability of the share holders of the company is unlimited.
Ans: False.
(iii) Registration is not compulsory in the case of a Joint Stock Company.
Ans: False.
(iv) Preference shareholders get dividend after the equity shareholders.
Ans: False.
INTEXT QUESTIONS 26.6
Choose the correct option :
(i) When shares are issued to the vendors at par as consideration of assets purchased, the total value of shares issued will be:
(a) More than the purchase consideration.
(b) Less than the purchase consideration.
(c) Equal to the purchase considerations.
(d) None of the above.
Ans: (c) Equal to the purchase consideration.
(ii) When shares are issued to the vendors at premiums as consideration of assets purchased, the total value of shares issued will be:
(a) Equal to the purchase consideration.
(b) More than the purchase considerations
(c) Less than the purchase considerations.
(d) None of the above.
Ans: (c) Equal to the purchase consideration.
(iii) When shares are issued to the vendors at discount as consideration of assets
purchased, the total value of shares issued will be:
(a) Less than the purchase considerations.
(b) More than purchase considerations.
(c) Equal to purchase considerations.
(d) None of the above.
Ans: (b) More than purchase considerations.
| TERMINAL EXERCISE |
1. Define company. Explain in brief its characteristics.
Ans: A company is a voluntary association of individuals formed to carry on business to earn profits or for non-profit purposes. These persons contribute towards the capital by buying its shares in which it is divided. It is an association of individuals incorporated under the Companies Act having a separate legal entity and common capital.
Characteristics of a Company:
(i) Artificial Legal Person: A company is created by law and has rights and powers similar to a natural person. It can enter into contracts and can sue or be sued.
(ii) Incorporated Body: It is registered under the Companies Act and has a separate legal identity distinct from its members.
(iii) Capital Divisible into Shares: The capital of the company is divided into small units called shares.
(iv) Transferability of Shares: Shares can be easily bought and sold in the stock market.
(v) Perpetual Existence: The company continues to exist irrespective of changes in membership.
(vi) Limited Liability: Liability of shareholders is limited to the face value of shares held.
(vii) Representative Management: Management is done by elected directors on behalf of shareholders.
(viii) Common Seal: It is the official signature of the company.
2. What are preference shares?Distinguish between equity share and preference shares.
Ans: Preference shares are those shares which carry preferential rights over equity shares in respect of payment of dividend and repayment of capital at the time of winding up.
| Basis | Equity Shares | Preference Shares |
| (i) Rate of Dividend | Not fixed | Fixed |
| (ii) Payment of Dividend | Paid after preference shareholders | Paid before equity shareholders |
| (iii) Refund of Capital | Paid after preference shareholders | Paid before equity shareholders |
| (iv) Voting Rights | Full voting rights | Limited voting rights |
| (v) Redemption | Cannot be redeemed | Can be redeemed |
3. List the various restrictions on a private company. Distinguish between a public company and a private company.
Ans: Restrictions on Private Company:
(i) Restricts transfer of shares.
(ii) Limits number of members to fifty.
(iii) Prohibits invitation to public for subscription.
(iv) Minimum paid up capital is one lakh rupees.
| Basis | Public Company | Private Company |
| (i) Minimum Members | Seven | Two |
| (ii) Maximum Members | No limit | Fifty |
| (iii) Invitation to Public | Allowed | Not allowed |
| (iv) Transfer of Shares | Freely transferable | Restricted |
| (v) Name | Ends with “Limited” | Ends with “Private Limited” |
4. What is share capital? Explain different types of share capital.
Ans: Share capital is the capital raised by a joint stock company through the issue of shares. The total capital of the company is divided into small indivisible units of fixed amount called shares. Thus, share capital represents the total amount contributed by shareholders.
Types of Share Capital:
(i) Authorised (Nominal) Capital: It is the maximum amount of share capital which a company is authorised to issue as per its Memorandum of Association.
(ii) Issued Capital: It is that part of the authorised capital which is offered to the public for subscription. The company may issue the whole or part of its authorised capital.
(iii) Subscribed Capital: It is that part of issued capital which is actually subscribed by the public. It may be equal to or less than the issued capital.
(iv) Called-up Capital: It is that part of subscribed capital which the company has called upon the shareholders to pay.
(v) Uncalled Capital: It is that part of subscribed capital which has not yet been called by the company.
(vi) Paid-up Capital: It is the portion of called-up capital which has actually been paid by the shareholders.
(vii) Reserve Capital: It is that portion of uncalled capital which is reserved to be called only at the time of winding up of the company.
5. Explain different types of companies.
Ans: Companies can be classified on the following bases:
1. On the basis of Formation:
(i) Statutory Company: A company formed by a Special Act of Parliament or State Legislature is called a statutory company. Examples include Reserve Bank of India and Life Insurance Corporation of India.
(ii) Registered Company: A company formed and registered under the Companies Act is called a registered company.
2. On the basis of Liability:
(i) Company Limited by Shares: Liability of members is limited to the face value of shares held.
(ii) Company Limited by Guarantee: Liability is limited to the amount guaranteed by members.
(iii) Unlimited Company : There is no limit on the liability of members.
(iv) Company under Section 25: Formed for promoting art, culture or social objectives and need not use “Limited”.
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