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karnataka class 12 commerce Accountancy Textbook solution


Karnataka class 12 commerce Accountancy Textbook solution

Karnataka class 12 commerce Accountancy Textbook solution:- we will provide complete details of Karnataka class 12 commerce Accountancy Textbook solution in this article.

Karnataka class 12 commerce Accountancy Textbook solution

Karnataka class 12 commerce Accountancy Textbook solution:-Company Accounts and Analysis of Financial Statements Chapter 1 Accounting for Share Capital

Q1 : What is public company?

Answer : A public company is defined as a company that offers a part of its ownership in the form of shares, debentures, bonds, securities to the

karnataka class 12 commerce Accountancy Textbook solution

general public through stock market. There must be atleast seven members to form a public company. As per the section 3 (1) (iv) of Companies Act 1956, public company means a company which:

  • is not a private company,
  • has a minimum paid up capital of Rs 5,00,000 or such higher paid up capital, as may be prescribed,
  • is a private company, being a subsidiary of a company which is not a private company.

A public company should not be mistakenly understood as a publicly-owned company, as the latter is exclusively owned and controlled by the government. A public company issues its share to general public without any restriction on maximum number of persons. A public company can be segmented into two types:

  1. Listed Company- A Company whose shares are listed and traded in the stock exchange like, Tata Motors, Reliance, etc.
  2. Unlisted Company- A Company whose shares are not listed in the stock exchange and thereby these shares cannot be traded in the stock exchange.

Karnataka class 12 commerce Accountancy Textbook solution

Q2 : What is meant by the word ‘Company’? Describe its characteristics.

Answer : The Section 3 (1) (i) of the Company Act of 1956 defines an organisation as a company that is formed and registered under the Act or any existing company that is formed and registered under any earlier company laws. In general, a company is an artificial person, created by law that has a separate legal entity, perpetual succession, common seal and has limited liability. It is a voluntary association of person who together contributes in the capital of the company to do business. Generally, the capital of a company is divided into small parts known as shares, the ownership of which is transferable subject to certain terms and conditions. There are two types of company, public company and private company.

Characteristics of Company

  1. Association of Person: A company is formed voluntarily by a group of persons to perform a common business. Minimum number of person should be two for formation of a private company and seven for a public company.
  2. Artificial Person: Company is an artificial and juristic person that is created by law.
  3. Separate Legal Entity: A company has a separate legal entity from its members (shareholders) and Directors. It can open a bank account, sign a contract and can own a property in its own name.
  4. Limited Liability: The liability of the members of a company is limited up to the nominal value or the face value of the shares. Unlike a partnership firm, on insolvency of a company, the members and the shareholders are not liable to pay the amount due to the creditors of the company. In fact, the members and the shareholders are only liable to pay the unpaid amount of the shares held by them. For example, if the value of share is Rs 10 and Rs 6 is paid up, then the member is liable to pay only Rs 4.
  5. Perpetual Existence: The existence of company is not affected by the death, retirement, and insolvency of its members. That is, the life of a company remains unaffected by the life and the tenure of its members in the company. The life of a company is infinite until it is properly wound up as per the Company Act.
  6. Common Seal: The Company is an artificial person and has no physical existence; hence it cannot put its signature. Thus, the Common Seal acts as an official signature of a company that validates the official documents.
  7. Transferability of Shares: The shares of public limited company is easily and freely transferable without any consent from other members. But the share of ownership of a private limited company is not transferable without the consent of the other members.

Karnataka class 12 commerce Accountancy Textbook solution

Q3 :What is private limited company?

Answer : Private limited company is a company that is limited by shares or by guarantee by its members. A private limited company is defined as a company that has a minimum paid up share capital of Rs 1,00,000. As defined by the Section 3 (1) (iii) of Companies Act 1956, private limited company is defined by the following characteristics:

  • It restricts the right to transfer its shares.
  • There must be atleast two and a maximum of 50 members (excluding current and former employees) to form a private company.
  • It cannot invite application from the general public to subscribe its shares, or debentures.
  • It cannot invite or accept deposits from persons other than its members, Directors and their relatives.

Unlike public company, a private company cannot issue its shares or debentures to general public at large as shares of these companies are not traded in the stock exchange, for example, CocaCola India Private limited, etc.

Karnataka class 12 commerce Accountancy Textbook solution

Q4 : Explain in brief the main categories in which the share capital of a company is divided.

Answer :

  1. Authorised Capital: It is an amount which is stated in the Memorandum of Association. It is the maximum amount that the company can raise by issuing shares. This maximum amount can be increased as per the procedures laid down in the Company Act.
  2. Issued Capital: It is a part of authorised capital which is offered by the company to the general public for subscription. For example, if the authorised capital of a company is Rs 1,00,000 divided into Rs 10 per share, then the issued capital cannot be more than Rs 1,00,000.
  3. Unissued Capital: It is a part of authorised capital that is not offered till now but can be offered to the general public in future. In the above example, if the issued capital is Rs 80,000, then the unissued capital is Rs 20,000.
  4. Subscribed Capital: It is a part of issued capital that is actually subscribed by the general public. For example, if the company has issued 8,000 shares of Rs 10 per share and public has subscribed for 7,500 shares, then the subscribed share capital of the company amounts to Rs 75,000.
  5.  Unsubscribed Capital: It is that part of the issued capital that is not subscribed by the public. For example, in the above example, 500 shares were left unsubscribed, making an unsubscribed share capital of Rs 5,000.
  6. Called up Capital: It is a part of subscribed capital that is called up by the Directors from the shareholders of a company to pay. For example, if the Directors call up Rs 6 out of Rs 10 (i.e. the face value of the share) from the shareholders of 10,000 to pay, then Rs 60,000 is regarded as called up share capital.
  7. Uncalled up Capital: It is that part of subscribed capital which is not called up till now but can be called up in future as per the need of the company. For example, in the above example, Rs 4 were left uncalled from shareholders holding 10,000 shares, so Rs 40,000 is uncalled up share capital.
  8. Paid up capital: It is that part of called up share capital which is actually received from the shareholders. If the entire called up money of Rs 4 on 1,000 shares has been received except from a shareholder holding 300 shares, then the paid up share capital is Rs 2,800 (Rs 4,000 – Rs 1,200). The amount of Rs 1,200 is called Call in Arrears that has been called up but is unpaid.
  9. Reserved Capital: As per the Section 99 of the Company Act of 1956, a limited company may call up any portion of uncalled share capital in the event of winding up of the company to pay its creditors. This amount of uncalled share capital cannot be used for any other purpose and is reserved for paying back the creditors, that is why, such portion of share capital is called reserve capital.

Karnataka class 12 commerce Accountancy Textbook solution

Q5 : Define Government Company?

Answer : As per the Section 617 of Company Act of 1956, a Government Company means any company in which not less than 51% of the paid up share capital is held by the Central Government, or by any State Government or Governments, or partly the Central Government and partly by one or more State Governments and includes a company which is a subsidiary of a Government Company as thus defined.

Karnataka class 12 commerce Accountancy Textbook solution

Q6 : What do you mean by the term ‘share’? Discuss the type of shares, which can be issued under the Companies Act, 1956 as amended to date.

Answer : The total capital of a company is divided into equal units of small denomination termed as shares. The ownership of these shares is easily transferable, from one person to other, subject to certain conditions. The person who is contributing in the capital in the form of shares is known as shareholder. The ownership of a shareholder is limited to the value of the shares held by him/her.

Types of Shares

As per the Section 86 of the Company Act of 1956, there are two types of shares- Preference Shares and Equity Shares (also known as Ordinary Shares)

  1. Preference Shares: Section 85 of the Company Act,1956 defines Preference Shares to be featured by the following rights:

    1. Preference Shares entitle its holder the right to receive dividend at a fixed rate or fixed amount.
    2. Preference Shares entitle its holder the preferential right to receive repayment of capital invested by them before their equity counterparts at the time of winding up of the company.
  2. Equity Shares: Equity Shareholders have a voting right and control the affairs of a company. As per Section 85 (2) of Companies Act 1956; equity share is a share that is not a preference share. It does not possess any preferential right of payment of dividend or repayment of capital. The rate of dividend is not fixed on equity shares and varies from year to year, depending upon the amount of profit available for distribution after paying dividend to the preference shareholders.

Karnataka class 12 commerce Accountancy Textbook solution

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karnataka class 12 commerce Accountancy Textbook solution

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