Related Aspects of Company Accounts

( a )The Human Resources team of Rama Ltd. has implemented an Employee Stock Option Plan for eligible employees one year after listing of the Company’s share in stock exchange. On April 1, 2022, Options were granted for 20,000 equity shares at INR 40 when market price was INR 130. The employees exercised their options for 19,000 shares only between 15th March, 2023 and 31st March, 2023; the remaining options lapsed. The company closes its books on 3lst March every year.

Show Journal Entries.

(a)Oreon Ltd. grants 10,000 employee stock options on 1.4.2021 at ₹ 400. The market price of the share is ₹ 1,600. The vesting period is 2.5 years and the maximum exercise period is one year.

l 3,000 unvested options lapses on 1.5.2023.

l 6,000 options are exercised on 30.6.2024.

l 1,000 vested options lapses at end of exercise period.

Pass journal entries and show necessary working notes.

On 1st April 2023 XYZ Ltd. granted 5000 ESOPs at INR 30 per share, when the market value was INR 50 per share. The options were to be exercised till the month of March, 2024. Calculate the amount of expenditure to be recorded in Statement of P & L of the company. Assume all employees vested the option of ESOP.

(A)₹ 1,50,000

(B)₹ 2,50,000

(C)₹ 1,00,000

(D)₹ 4,00,000

An entity issued 50 shares each to its 170 employees subject to service condition of next 2 years. The settlement is to be made in cash. Grant date fair value of the share is ₹ 85 each, however, the fair value as at end of 1st year, 2nd year were ₹ 80 and ₹ 90 respectively. Calculate expense for year 2.

(A)₹ 4,50,000

(B)₹ 4,25,000

(C)₹ 4,25,500

(D)₹ 4,52,500

( i )What are the conditions required to be fulfilled by a company in order to issue ESOP ?

Employees Stock Option Scheme must be :

(A)Sanctioned by Special Resolution & don’t include Independent Director also

(B)Sanctioned by Ordinary Resolution & don’t include Independent Director also

(C)Sanctioned by Special Resolution & include Independent Director also

(D)Sanctioned by Ordinary Resolution & include Independent Director also

A Ltd. is a listed public company in which Mr. X is working as Managing Director, 120 Permanent Employees including 10 directors, 75 contractual employees, and 3 Independent directors. The company wants to issue debentures under the Employees Stock Option. To whom company can issue debenture under this scheme ?

(A)To all the 200 employees i.e. Managing Director, Permanent Employees, Contractual Employees and Independent Directors

(B)To the Managing Director, Permanent Employees and Contractual labours

(C)To the Managing Director and to the Permanent Employees only

(D)Debentures cannot be issued under the Employees Stock Option Scheme

Under ESOS employees are given an option to purchase shares at .................. .

(A)On the spot

(B)Later date i.e. after vesting period

(C)Relevant date

(D)Later date i.e. after end of accounting year

Ind AS 102 applies to :

(A)both employees and non-employees share based payments

(B)shareholders of the company

(C)non-employees share based payments

(D)both employees share based payments

The date that award exercised satisfied conditions of agreement is called :

(A)Grand date

(B)Vesting date

(C)Actual date

(D)Exercise date

(c)M2 Ltd. is a company and has an ESOP programme, for the following ESOP related exercise :

Assume face value of share is ₹ 10. Company follows April-March year end. You are required to pass necessary journal entries.

Beta Ltd. granted 5000 options to employees and directors under Employee Stock Option Scheme on 1st April, 2023 @ ₹ 170 when the market price was ₹ 310. If the vesting period is 2.5 years, the amount to be amortised every year is:

(A)₹ 2,80,000

(B)₹ 3,40,000

(C)₹ 6,20,000

(D)₹ 2,33,333.33

A company gave an offer to purchase its own shares having a nominal value of ₹ 180 crores for a consideration of ₹ 200 crores. The amount to be deposited in the Escrow Account shall be :

(A)₹ 200 crores

(B)₹ 180 crores

(C)₹ 35 crores

(D)₹ 25 crores

Vesting has two components.................

(A)Vesting date and vesting period

(B)Vesting percentage and vesting date

(C)Vesting percentage and vesting price

(D)Vesting percentage and vesting period

Option discount under Employees Stock Option Scheme (ESOS) means:

(A)the excess of the market value of the share at the date of grant of the option under ESOS over the exercised price of the option (including upfront payment, if any)

(B)the market value of the share at the date of grant of the option under ESOS

(C)the excess of the face value of the share at the date of grant of the option under ESOS over the exercised price of the option (including upfront payment, if any)

(D)the exercised price of the option (including upfront payment, if any)

The date at which entity and counterparty have a shared understanding of the terms and conditions of the agreement is called.......................

(A)Option date

(B)Grant date

(C)Vesting date

(D)Exercise date

The company is required to recognize employees stock compensation expenses:

(A)On the date of receipt of order for goods and services

(B)On the date of receipt of goods and services

(C)On the date of billing for goods and services

(D)On the date of receipt of payment for goods and services

A company can issue shares under Employees Stock Option Scheme (ESOS) to the permanent employees of :

(A)Its own

(B)Its subsidiary company

(C)Its holding company

(D)All of the above

In case of Companies other than listed companies, ...................... has the right to determine the exercise price under the Employees Stock Option Scheme (ESOS).

(A)The Company

(B)The Securities and Exchange Board of India

(C)The Central Government

(D)The Employees of the Company

G Ltd. has initiated a share-based payment arrangement with its employees. Accordingly, an employee who remains in service for at least five years from the grant date can exercise the option at any time after the end of five years but before the end of 12th year from the grant date. In this case, the vesting period of the option is :

(A)5 years

(B)7 years

(C)12 years

(D)As opted by the employee

As per ICAI Guidance Note on ESOP, Share Options Outstanding Account should be shown in the Balance Sheet of a company as follows :

(A)Separate line item under Reserves and Surplus

(B)Separate line item under Share Capital

(C)Separate line item under Other Reserves

(D)Separate line item under Current Liabilities

With reference to Ind AS 102, what does SBP stand for ?

(A)Sum Based Payment

(B)Share Based Payment

(C)Share Based Proportion

(D)Share Based Profit

Which of the following is not an investing cash flow ?

(A)Purchase of marketable securities for ₹ 5,00,000 by cheque

(B)Sale of land for ₹ 30,00,000

(C)Sale of 10,000 equity shares @ ₹ 100 each

(D)Purchase of Property Plant and Equipment for ₹ 10,00,000 for cash

The date on which the company and employees agree to the terms of an employee share-based payment plan is :

(A)Vesting date

(B)Exercise date

(C)Grand date

(D)Next date

There shall be a minimum vesting period of .................. in case of Employee Stock Option Scheme (ESOS).

(A)3 months

(B)1 year

(C)6 months

(D)3 years

Where the right to obtain Shares or Stock options expires unexercised, the balance standing to the credit of Employee Stock Option Outstanding A/c should be transferred to :

(A)Profit & Loss A/c

(B)General Reserve A/c

(C)Share Based Payment Reserve A/c

(D)Securities Premium A/c

Under the ............... employees are given an option to purchase shares on the spot at a discount price.

(A)Employees Stock Purchase Scheme

(B)Employee Stock Option Scheme

(C)Stock Appreciation Rights Scheme

(D)Preferential Allotment Scheme

SEBI (Share Based Employee Benefits) Regulations, 2014 apply to the :

(A)Employee stock option schemes and employee stock purchase schemes only

(B)stock appreciation rights schemes only

(C)general employee benefits schemes and retirement benefit schemes only

(D)All of the above

Capital Budgeting Decisions are part and parcel of :

(A)Financing and Investing Decisions

(B)Investing and Dividend Decisions

(C)Financing and Dividend Decisions

(D)Only Investing Decisions.

(a)Share-based payments as per Ind AS-102.

(iv)Explain briefly Share Based Payment Transaction and Arrangement with suitable examples of SBP Arrangement.

(ii)Write a short note on “Role of Escrow Account in buyback of shares”.

The buy-back of equity shares in any financial year cannot .................. exceed of its total paid-up equity capital in that financial year.

(A)15%

(B)20%

(C)25%

(D)10%

A company wants to buy-back stock. How will this impact the company and its stock ?

(A)The price of the shares is expected to rise as there will be fewer shares in the open market

(B)The company makes more money because management owns more stock

(C)The net income of the company will go up because of the increase in stock price

(D)Other investors make less money because management can pay more dividends to internal shareholders before external shareholders

( a )Super Star Ltd.

Balance Sheet as at March 31, 2024

On April 1, 2024 – shareholders of the company authorized buyback as under :

(i)10% of equity shares would be bought back at ₹ 17/- per share.

(ii)12% debentures to be issued for ₹ 1,00,000/- to finance the buyback and balance from general reserve to be utilized for this purpose.

(iii)Premium on buyback to be met from securities premium account.

(iv)lnvestments would be sold for ₹ 11,75,000/-.

Pass necessary journal entries to record above transactions.

A company has 10,00,000 equity shares of ₹ 100 each. The company wants to buyback 1,00,000 equity shares from the market. For this :

(A)Special resolution is required to be passed in the general meeting as the buyback is only 10% of the outstanding share capital

(B)Ordinary resolution is required to be passed in the board meeting as the buyback does not exceed 10% of the outstanding share capital

(C)No need to pass any resolution as the buyback is less than or equal to 10% of the outstanding equity share capital

(D)Ordinary resolution is required to be passed in the annual general meeting as the buyback is equal to 10% of the outstanding share capital

A special bank account with schedule bank is to be opened if buyback of shares is given :

(A)Within 15 days from the closure of the offer

(B)Within 10 days from the closure of the offer

(C)Within 7 days from the closure of the offer

(D)Immediately on the closure of the offer

A limited company decides to buy-back 50,000 equity shares of ₹ 20 each at a premium of 15% Earlier if the company offered one buy-back scheme from 1st April 2023 to its equity shareholders and closed it on 30th April, 2023. From which date the second offer of buy-back shall be made available ?

(A)1st June, 2023

(B)1st August, 2023

(C)1st November, 2023

(D)1st May 2024

A listed company, after the completion of a buy-back under Rule 17, shall file a return in Form No. SH-11 along with the fee with :

(A)The Registrar of Companies

(B)The Securities and Exchange Board of India (SEBI)

(C)The Central Government

(D)The Registrar of Companies and SEBI

In case the shares are bought back at discount, the amount of discount on buyback will be credited to................. .

(A)Capital Redemption Reserve A/c

(B)Capital Reserve A/c

(C)General Reserve A/c

(D)Discount on the issue at discount A/c

In which case, a special resolution is not required at a general meeting of the company to buy-back the shares:

(A)the buy- back is 10% or less of the company’s total paid -up equity capital and free reserves

(B)the buy-back is 10% or less of the total paid-up equity capital and free reserves of the company and such buyback has been authorized by the Board using a resolution passed at its meeting

(C)the buy- back is 25% or less of the company’s total paid -up equity capital and free reserves

(D)the buy-back is 25% or less of the total paid-up equity capital and free reserves of the company and such buyback has been authorized by the Board using a resolution passed at its meeting

Every buy-back shall be completed within a period of.................... from the date of the resolution or special resolution, as the case may be, passed by the Board. [Section 68(4)]

(A)Six months

(B)One year

(C)Eighteen months

(D)Two years

The minimum time interval between two successive buy-back offers is .................... from the closure of the preceding offer of buy-back.

(A)6 months

(B)12 months

(C)18 months

(D)24 months

A company planned to buy-back its own shares for a consideration of ₹ 200 crores. For this, as per the SEBI Regulations 2018, the escrow amount that should be payable is :

(A)₹ 200 crores

(B)₹ 50 crores

(C)₹ 35 crores

(D)₹ 25 crores

As per Section 68(2) of the Companies Act, 2013, post buy-back debt-equity ratio should be .................. .

(A)1 : 1

(B)1.5 : 1

(C)2 : 1

(D)2.5

Every buy-back shall be completed within a period of .................... from the date of the resolution or special resolution, as the case may be, passed by the Board of Directors.

(A)Three months

(B)Six months

(C)One year

(D)Two years

In case of buy-back of shares, passing of special resolution by a company is not required if :

(A)the buy-back is 10% or less of the total paid-up equity share capital

(B)the buy-back is 10% or less of the total paid-up equity share capital and free reserves

(C)the buy-back is 25% or less of the total paid-up equity share capital

(D)the buy-back is 25% or less of the total paid-up equity share capital and free reserves

The Escrow account under Regulation 9(xi) of SEBI (Buy-Back of Securities) Regulations, 2018, does not include :

(A)Cash deposited with a scheduled commercial bank

(B)Bank guarantee in favour of the merchant banker

(C)Deposit of acceptable securities with appropriate margin, with the merchant banker

(D)Deposit of acceptable securities with appropriate margin, with a scheduled commercial bank

Section 68(4); Every buy-back shall be completed within a period of…….from the date of passing of the special resolution, or as the case may be, the resolution passed by the Board.

(A)6 months

(B)One year

(C)Two years

(D)5 years

According to section 68(1) of the Companies Act 2013, a company cannot purchase its own shares or other specified securities (referred to as buy-back) out of :

(A)Free reserves

(B)Securities premium account

(C)The proceeds of the issue of any shares or other specified securities

(D)The proceeds of an earlier issue of the same kind of shares or same kind of other specified securities

A company after the completion of the buyback under this sections, shall file with the Registrar a return in ................... .

(A)Form No. SH. 9

(B)Form No. SH. 10

(C)Form No. SH. 11

(D)Form No. SH. 12

As per Section 68 of the Companies Act, 2013, post buyback, debt equity ratio should not exceed ....................

(A)1

(B)1.5

(C)2

(D)3

Where a company buys back own shares or other specified securities, it shall extinguish and physically destroy the shares or securities so brought back within ............... of the last date of completion of buy-back ?

(A)3 days

(B)8 days

(C)7 days

(D)9 days

In case of buy-back of shares, passing of the special resolution is not required if :

(A)the buy-back is 10% or less of the total paid-up equity capital of the company

(B)the buy-back is 25% or less of the total paid-up equity capital of the company

(C)the buy-back is 10% or less of the total paid-up equity capital and free reserves of the company

(D)the buy-back is 25% or less of the total paid-up equity capital and free reserves of the company

Every buy-back shall be completed within a period of ............. from the date of the resolution or special resolution, as the case may be, passed by the Board.

(A)One month

(B)Three months

(C)Six months

(D)One year

(c)A company made a public issue of ₹ 1,25,000 equity shares of ₹ 100 each as on 15th March, 2026, ₹ 50 payable on application. The entire issue was underwritten by A, B, C, and D in the proportion of 30%, 25%, 25% and 20% respectively. Under the terms agreed upon a maximum limit of underwriting commission was payable to underwriters. A, B, C and D also agreed on firm underwriting of 4000, 6000, Nil, 15,000 shares respectively. The total subscription excluding firm underwriting but including marked application received were 90,000. Marked applications were received from A- 24,000, B-20,000, C-12,000 and D-24,000. Consider firm underwriting shares are treated as unmarked application.

Prepare a statement showing net underwriter liability.

(b)Calculate the underwriting commission for each underwriter.

(c)Pass all the journal entries for payment of underwriting commission.

(b)Sangam Ltd. came up with public issue of 3,00,000 Equity Shares of ₹ 10 each at ₹ 15 per share. P, Q and R took underwriting of the issue in the ratio of 3 : 2 : 1 with the provisions of firm underwriting of 20,000, 14,000 and 10,000 shares respectively.

Applications were received for 2,40,000 shares excluding firm underwriting.

The number of applications from public were received as under :

P – 60,000

Q – 50,000

R – 60,000

Compute the liability of each underwriter as regards the number of shares to be taken up assuming that the benefit of firm underwriting is not given to individual underwriters.

ABC Limited issued 50000 equity shares of which only 60% was underwritten by Sun. Application for 48,000 shares were received in all out of which Sun marked application were 26000 shares. You are required to determine the liability of Sun.

(A)4000 shares

(B)2000 shares

(C)2200 shares

(D)2400 shares

(c)Shree Ltd. issued 5,00,000 equity shares. Applications for 4,50,000 shares were received.

The following are details related to underwriters :

The remaining applications did not have any stamp. Determine the liability of the underwriters.

A company issued a prospectus inviting applications for 2,00,000 equity shares of ₹ 100 each. The whole issue was fully underwritten by three underwriters : A – 1,00,00 shares. B – 70,000 shares and C

–30,000 shares. Applications were received for 1,60,000 shares, of which marked applications were

A–76,000 shares, B– 40,400 shares, C–33,600. The liability of the underwriters will be :

(A)A–24,000; B–29,600; C–(–3,600)

(B)A–16,000; B–24,000; C–Nil

(C)A–19,000; B–26,100; C–(–5,100)

(D)A–1,00,000; B–70,000; C–30,000

A person who undertakes to take up the whole or a portion of the offered shares or debentures as may not be subscribed for by the public is called ................. .

(A)Writer

(B)Share writer

(C)Broker

(D)Underwriter

( a )New Ltd. issued 1,00,000 shares which were underwritten as under :

Total subscriptions excluding firm underwriting (including market applications) were 50,000 shares. Prepare a statement calculating net underwriter liability. Consider firm underwriting shares are treated as unmarked applications.

Visva Ltd. issued 50,000 shares of ₹ 10 each. The entire issue was underwritten by Ragu. If the net liability (including firm underwriting) and firm underwriting are respectively 20,000 and 5,000 shares, the applications received are :

(A)30,000

(B)25,000

(C)20,000

(D)35,000

A commission called as Over-riding Commission is paid by the company to the principal underwriters to encourage :

(A)Full underwriting

(B)Speedy underwriting

(C)Firm underwriting

(D)Sub-underwriting

(a)XYZ Ltd. incorporated on 1st April, 2023 issued a prospectus inviting applications for 5,00,000 equity shares of ₹ 10 each. The whole issue was fully underwritten by K, B, D, and M as follows :

K-2,00,000 Shares,

B-1,50,000 Shares,

D-1,00,000 Shares,

M-50,000 Shares

The applications were received for 4,50,000 shares of which marked applications were as follows :

K-2,20,000 Shares,

B-90,000 Shares,

D-1,10,000 Shares,

M-10,000.

Calculate the liability of individual underwriters

In the case of shares, the rate of underwriting commission paid or agreed to be paid shall not exceed:

(A)five per cent (5%) of the price at which the shares are issued or a rate authorized by the articles, whichever is less

(B)five per cent (5%) of the price at which the shares are issued or a rate authorized by the articles, whichever is higher

(C)two and half per cent (2.5%) of the price at which the shares are issued or a rate authorized by the articles, whichever is less

(D)two and half per cent (2.5%) of the price at which the shares are issued or a rate authorized by the articles, whichever is higher

Underwriter Ltd. issued 1,25,000 shares which were underwritten as follows : P : 40%, Q : 40% and R : 20% Details of the marked application are : P : 40,000 shares, Q : 32,000 shares and R : 8,000 shares. Unmarked applications are for 20,000 shares. The net liability of individual underwriters P, Q and R is:

(A)50,000; 50,000; 25,000

(B)40,000; 32,000; 8,000

(C)10,000; 18,000; 17,000

(D)2,000; 10,000; 13,000

PK Ltd. issued 20,000 equity shares of ₹ 25 each for public subscription. The issue was underwritten by P, Q and R as 25%, 30% and 25% respectively. The company received 13,000 applications, of which marked applications of P, Q and R were respectively 4,000, 3,000 and 4,000. In this case, the net liability of P, Q and R respectively is :

(A)1,000 : 3,000 : 1,000

(B)500 : 2,400 : 500

(C)1,400 : 1,680 : 1,400

(D)1,750 : 2,100 : 1,750

Unmarked application has to be distributed to underwriters in the ratio of ...................

(A)Gross Liability Ratio

(B)Last Agreed Ratio

(C)Net Liability Ratio

(D)Equal Ratio

Applications bearing the stamp of the respective underwriter are called as .............

(A)Firm applications

(B)Stamped applications

(C)Underwritten application

(D)Marked applications

Underwriting is a contract of :

(A)Indemnity

(B)Bailment

(C)Guarantee

(D)Pledge

A company offered 2,50,000 equity shares to public for subscription. 70% of public issue was underwritten by G. Her firm underwritten was for 40,000 shares. Public subscribed for 1,30,000 shares. What is the net liabilities of G if as per underwriting agreement no credit is given to underwriter G for her firm underwritten shares ?

(A)4,000 Shares

(B)85,000 Shares

(C)96,000 Shares

(D)56,000 Shares

(a)Aman Ltd. issued to the public 16,000, 10% Debentures of ₹ 100 each at a discount of 2%. The amount payable by applicants is as ₹ 50 per debenture along with application and balance amount at the time of allotment. The issue was fully underwritten by Gama Ltd. for commission at the rate of 1% of nominal value of the debentures underwritten. The whole of the issue was subscribed by the members of the public at large. The company paid underwriting commission in the form of 10% Debentures of ₹ 100 each.

Pass the necessary journal entries in the books of Aman Ltd. for the above mentioned transactions.

(ii)A company has supplied the following data regarding underwriting of shares :

Ascertain the final liability of each underwriter.

Which of the following statements is true ?

(A)The company shall not convert its existing equity share capital with voting rights into equity share capital carrying differential voting rights and vice versa

(B)The total number of shares allotted with differential rights need not be disclosed in the Board’s Report

(C)The holders of the equity shares with differential rights shall not enjoy all other rights such as bonus shares, rights shares etc.

(D)Since the details of all the shareholders are there in the register of members there is no need to contain the relevant particulars of the issue of shares with differential rights

The voting right in respect of shares with differential rights in a company shall not exceed ................... of the total voting power including voting power in respect of equity shares with differential rights issued at any point of time.

(A)24%

(B)50%

(C)74%

(D)75%

The voting power, in respect of shares with differential rights, of a company shall not exceed .................. of total voting power including voting power in respect of equity shares with differential rights issued at any point of time.

(A)24%

(B)49%

(C)74%

(D)50%

In case of issue of equity shares with differential rights as to dividend, voting or otherwise, the shares with differential rights shall ....................... of the total post-issue paid up equity share capital, including equity shares with differential rights issued at any point of time.

(A)not exceed ten percent

(B)not exceed fifty one percent

(C)not exceed twenty five percent

(D)not exceed twenty six percent