WorksheetsBuy-back of Shares Worksheet
Total questions: 15
Worksheet time: 10mins
Meaning of buy-back of shares refers to:
Issue of new shares to the public
Purchase of own shares by the company and their cancellation
Transfer of shares between two shareholders
Conversion of debentures into shares
After buy-back of shares by a company:
The number of shares in the market increases
The company’s share capital and number of shares reduce
The company’s share capital increases
Only reserves are affected, not share capital
Buy-back of shares is permitted only when:
The company passes an ordinary resolution in all cases
The company follows conditions in the Companies Act and relevant rules
The company has partly paid shares
SEBI gives approval in every case
Which of the following is a common reason for buy-back of shares?
To decrease EPS
To reduce market price of shares
To use surplus cash when there are no good projects
To increase number of shareholders
When a company buys back its shares and profit remains the same, EPS generally:
Decreases because number of shares increases
Increases because number of shares decreases
Remains constant because profit is same
Becomes zero
Which of the following is NOT a valid reason for buy-back as per the notes?
To support or increase market price of shares
To improve capital structure
To prevent takeover
To avoid payment of statutory taxes
For buy-back of equity shares, funds can be used from:
Capital reserve only
Free reserves, securities premium, and proceeds of other securities
Only from proceeds of same kind of shares
Only from bank overdraft
Which of the following sources CANNOT be used for buy-back of equity shares?
Free reserves
Securities premium account
Proceeds of issue of debentures
Proceeds of issue of same kind of equity shares being bought back
The premium on buy-back of shares (buy-back price – face value) is debited to:
Share capital account only
Securities Premium A/c, and if insufficient then free reserves
Capital Redemption Reserve A/c
Revaluation reserve
Capital Redemption Reserve (CRR) is created mainly when:
Shares are issued at discount
Buy-back is done out of fresh issue proceeds
Buy-back is done out of free reserves or securities premium
Company declares dividend
Which statement about CRR is correct?
CRR can be freely used for paying dividends
CRR can be used only for issuing fully paid bonus shares
CRR can be used for meeting normal business expenses
CRR can be transferred back to general reserve at any time
Amount to be transferred to CRR in case of buy-back is equal to:
A company buys back 10,000 equity shares of face value 10 each at 14 per share, entirely out of free reserves and securities premium. What is the amount to be transferred to CRR?
1,40,000
40,000
1,00,000
10,000
In accounting treatment of buy-back, the Buy-back of Shares A/c (or Equity Shares Buy-back A/c) is ultimately:
Debited and carried forward as an asset
Credited to General Reserve
Closed by crediting Bank A/c when payment is made
Transferred to Capital Redemption Reserve A/c
A company buys back fully paid equity shares using free reserves and then creates CRR equal to the face value of shares bought back. This mainly ensures that:
Total effective capital base of the company remains protected
Number of shareholders increases
Company can reduce liabilities freely
Securities premium balance always increases
