Shares, Debentures, Ratio Analysis & Other Basics — Accountancy

📑 Topics on this page (Jump to Topic):

1. Shares & Share Capital 2. Debentures 3. Key Ratios 4. Cash Flow, Consignment & Computerised Accounting 5. Worked Examples 6. Practice MCQs

📌 1. Shares & Share Capital

Capital	Meaning
Authorised (nominal)	Maximum limit in the Memorandum of Association
Issued	Part offered to the public
Subscribed	Part taken up by the public
Called-up	Amount called on subscribed shares
Paid-up	Amount actually received out of called-up

Kinds: equity and preference shares — preference shares get priority in dividend and return of capital.
Securities premium (issue above face value) — Section 52; use is restricted (bonus shares, writing off preliminary expenses etc.), not for dividends.
Issue of shares at a discount is prohibited under Section 53 (sweat equity shares — Section 54 — are the exception).
Forfeiture: shares are forfeited for non-payment of calls; amount received goes to Share Forfeiture A/c. After reissue, the balance goes to capital reserve.
On over-subscription, shares are allotted pro-rata.

📌 2. Debentures

Basis	Shares	Debentures
Status	Owned capital; holder is an owner	Borrowed capital; holder is a creditor
Return	Dividend — only from profit	Fixed interest — profit or not
Voting	Equity holders vote	No
Repayment	On winding up (except buy-back)	Redeemed after a fixed period

Debentures fall under Section 71 of the Companies Act 2013. Debenture interest is a charge on profit; dividend is an appropriation.

📌 3. Key Ratios

Ratio	Formula	Norm / signal
Current ratio	Current assets ÷ current liabilities	2:1
Quick (acid-test) ratio	Liquid assets (current − stock − prepaid) ÷ current liabilities	1:1
Debt-equity ratio	Long-term debt ÷ shareholders' funds	Up to 2:1 considered safe
Gross profit ratio	Gross profit ÷ net sales × 100	Profitability
Inventory turnover ratio	Cost of goods sold ÷ average stock	Efficiency (activity)
Debtors turnover ratio	Net credit sales ÷ average receivables	Speed of collection

Example: current assets ₹3,00,000 (incl. stock ₹1,00,000), current liabilities ₹1,50,000 → current ratio 2:1; quick ratio = 2,00,000 ÷ 1,50,000 ≈ 1.33:1.

📌 4. Cash Flow, Consignment & Computerised Accounting

Cash flow statement (AS 3): three activities — operating, investing (buying/selling fixed assets), financing (issuing shares/loans, paying dividend and interest — for a non-financial company).
Consignment: the consignor sends goods to the consignee for sale; ownership stays with the consignor. The consignee sends an "Account Sales". Del credere commission covers the risk of credit sales.
Joint venture: a temporary partnership for a specific short-term job.
Computerised accounting (Tally, ERP): voucher entry auto-generates journal, ledger, trial balance and final accounts; speed and error control.

⚠️ Exam Traps:

In India, issuing shares at a discount is banned (except sweat equity); issue at a premium is allowed.
Stock and prepaid expenses are excluded from the quick ratio.
In consignment the consignee is an agent, not a buyer; unsold goods are the consignor's stock.

💡 Memory Tip: Remember the norms: current 2:1, quick 1:1, debt-equity 2:1.

📌 5. Worked Examples

Example 1: issue of shares at a premium

10,000 shares of ₹10 issued at ₹12: ₹3 on application, ₹5 on allotment (including ₹2 premium), ₹4 on first and final call; fully subscribed and received.

Stage	Received (₹)	Share capital (₹)	Securities premium (₹)
Application	30,000	30,000	—
Allotment	50,000	30,000	20,000
Call	40,000	40,000	—
Total	1,20,000	1,00,000	20,000

Example 2: ratios from a balance sheet

Data	Formula	Answer
Current assets 3,00,000 (stock 80,000, prepaid 10,000); current liabilities 1,50,000	CA ÷ CL	2 : 1
Quick assets = 3,00,000 − 80,000 − 10,000	2,10,000 ÷ 1,50,000	1.4 : 1
Long-term debt 2,00,000; shareholders' funds 4,00,000	Debt ÷ equity	0.5 : 1
Sales 12,00,000; gross profit 3,00,000	GP ÷ sales × 100	25%

📌 6. Practice MCQs

📝 Practice MCQs (prepared by SF Prep — not PYQs)

Q1. The maximum share capital stated in the Memorandum of Association is: Practice

(A) issued capital

(B) authorised capital

(C) paid-up capital

(D) called-up capital

Correct answer: (B)
Also called nominal or registered capital.

Q2. Which section of the Companies Act 2013 prohibits issue of shares at a discount? Practice

(A) Section 52

(B) Section 71

(C) Section 53

(D) Section 128

Correct answer: (C)
Sweat equity (Section 54) is the exception.

Q3. Securities premium cannot be used for: Practice

(A) issuing fully paid bonus shares

(B) writing off preliminary expenses

(C) buy-back of shares

(D) paying dividends

Correct answer: (D)
Section 52 restricts its uses.

Q4. After reissue of forfeited shares, the balance in Share Forfeiture A/c goes to: Practice

(A) capital reserve

(B) general reserve

(C) P&L account

(D) securities premium

Correct answer: (A)
It is a capital profit.

Q5. A debenture holder is the company's: Practice

(A) owner

(B) manager

(C) partner

(D) creditor

Correct answer: (D)
Debentures are borrowed capital.

Q6. Interest on debentures is a: Practice

(A) charge against profit

(B) appropriation of profit

(C) capital receipt

(D) reserve

Correct answer: (A)
It is payable whether or not there is profit.

Q7. The ideal current ratio is taken as: Practice

(A) 1:1

(B) 2:1

(C) 3:1

(D) 1:2

Correct answer: (B)
The ideal quick ratio is 1:1.

Q8. Which item is excluded from the quick ratio? Practice

(A) Debtors

(B) Cash

(C) Stock

(D) Bills receivable

Correct answer: (C)
Stock takes time to turn into cash.

Q9. Current assets ₹3,00,000 (incl. stock ₹1,00,000), current liabilities ₹1,50,000. Quick ratio is: Practice

(A) 2:1

(B) 0.67:1

(C) 1.33:1

(D) 1:1

Correct answer: (C)
2,00,000 ÷ 1,50,000.

Q10. The accounting standard on cash flow statements is: Practice

(A) AS 2

(B) AS 10

(C) AS 26

(D) AS 3

Correct answer: (D)
Three activities: operating, investing, financing.

Q11. Purchase of machinery falls under which activity in a cash flow statement? Practice

(A) Investing activity

(B) Operating activity

(C) Financing activity

(D) None

Correct answer: (A)
Buying and selling fixed assets is investing.

Q12. Cash from issue of shares falls under: Practice

(A) Investing activity

(B) Financing activity

(C) Operating activity

(D) Extraordinary item

Correct answer: (B)
Raising capital is financing.

Q13. In a consignment, the consignee is an: Practice

(A) agent

(B) buyer

(C) owner

(D) creditor

Correct answer: (A)
Ownership stays with the consignor.

Q14. The statement of sales sent by the consignee to the consignor is the: Practice

(A) pro-forma invoice

(B) debit note

(C) Account Sales

(D) statement of affairs

Correct answer: (C)
It details sales, expenses and commission.

Q15. The extra commission given to a consignee for bearing bad-debt risk is: Practice

(A) ordinary commission

(B) over-riding commission

(C) brokerage

(D) del credere commission

Correct answer: (D)
The consignee bears bad-debt losses.

Q16. The debt-equity ratio measures: Practice

(A) short-term liquidity

(B) long-term solvency

(C) profitability

(D) speed of stock movement

Correct answer: (B)
Relation of outside debt to owners' funds.

Q17. When applications exceed shares offered, allotment is usually made: Practice

(A) first come, first served

(B) on a pro-rata basis

(C) in full to all

(D) only to institutions

Correct answer: (B)
This is over-subscription.

Q18. Preference shareholders get priority in: Practice

(A) voting

(B) management

(C) dividend and return of capital

(D) bonus

Correct answer: (C)
Ahead of equity shareholders.

Q19. Inventory turnover ratio equals: Practice

(A) sales ÷ closing stock × 100

(B) current assets ÷ stock

(C) gross profit ÷ stock

(D) cost of goods sold ÷ average stock

Correct answer: (D)
An activity ratio.

Q20. A temporary partnership for a specific short-term job is a: Practice

(A) joint venture

(B) consignment

(C) LLP

(D) subsidiary company

Correct answer: (A)
It ends when the job is done.

Practice MCQs SF Prep द्वारा तैयार (PYQ नहीं)। तथ्य ICAI लेखांकन मानकों, कंपनी अधिनियम 2013, परक्राम्य लिखत अधिनियम 1881 व भारतीय साझेदारी अधिनियम 1932 से अक्टूबर 2026 तक जाँचे गए।

🏢 Shares, Debentures, Ratio Analysis & Other Basics

📌 1. Shares & Share Capital

📌 2. Debentures

📌 3. Key Ratios

📌 4. Cash Flow, Consignment & Computerised Accounting

📌 5. Worked Examples

Example 1: issue of shares at a premium

Example 2: ratios from a balance sheet

📌 6. Practice MCQs

📝 Practice questions