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Home Questions ZSAQ2TQAKE
Target Exam

CUET

Subject

-- Accountancy Part A

Chapter

Accounting for Shares

Question:

There are two statements marked as Assertion (A) and Reason (R). Mark your answer as per the options given below.

Assertion (A):  Authorised Share Capital is the maximum share capital that a company can issue.
Reason (R): Authorised Share Capital is the maximum amount of share capital which is authorized to be issued by the Memorandum of Association.

Options:

Both Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A).

Assertion (A) and Reason (R) are correct but the Reason (R) is not the correct explanation of Assertion (A).

Both Assertion (A) and Reason (R) are not correct.

Assertion (A) is not correct but the Reason (R) is correct.

Correct Answer:

Both Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A).

Explanation:

The correct answer is option 1- Both Assertion (A) and Reason (R) are correct and Reason (R) is the correct explanation of Assertion (A).

Assertion (A) states that "Authorised Share Capital is the maximum share capital that a company can issue." This is correct because Authorised Share Capital (or Authorized Capital) is indeed the maximum amount of capital that a company is permitted to issue according to its Memorandum of Association.

Reason (R) states that "Authorised Share Capital is the maximum amount of share capital which is authorized to be issued by the Memorandum of Association." This is also correct because the Authorized Share Capital is specified in the company's Memorandum of Association and represents the upper limit of shares that can be issued.

Since Reason (R) correctly explains why Assertion (A) is true, both the Assertion and the Reason are correct, and the Reason is the correct explanation of the Assertion.

Authorised Capital: Authorised capital is the amount of share capital which a company is authorised to issue by its Memorandum of Association. The company cannot raise more than the amount of capital as specified in the Memorandum of Association. It is also called Nominal or Registered capital. The authorised capital can be increased or decreased as per the procedure laid down in the Companies Act. It should be noted that the company need not issue the entire authorised capital for public subscription at a time. Depending upon its requirement, it may issue share capital but in any case, it should not be more than the amount of authorised capital.

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