Auditing and EthicsQuestion 5677 of 212
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5. Mr. C, an Articled Clerk responsible for the audit procedures regarding the share capital, found that during the year under audit, PQ Ltd. had issued sweat equity shares amounting to ` 10 Lakhs. Which of the following statements regarding the issue of sweat equity shares are correct? (I) It can be issued to employees. (II) It can be issued to directors. (III) It can be issued at a discount. (IV) It should be of a class of shares already issued by PQ Ltd.

Options

AI & III above
BI, II & III above AUDITING AND ETHICS
CI, II & IV above
DI, II, III & IV above (2 Marks)
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Correct Answer

Option DI, II, III & IV above (2 Marks)

All Options:

  • AI & III above
  • BI, II & III above AUDITING AND ETHICS
  • CI, II & IV above
  • DI, II, III & IV above (2 Marks)

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Detailed Solution & Explanation

Correct Answer: Option **D**

Explanation:
Under Section 54 of the Companies Act, 2013, a company is permitted to issue **sweat equity shares** if they comply with the following conditions:

- **Statement (I) & (II)**: The shares can be issued to its employees (permanent employees of the company or its subsidiary/holding company, in India or outside) or its directors (whole-time directors or otherwise). Thus, statements (I) and (II) are correct.
- **Statement (III)**: Sweat equity shares are issued for providing know-how or making available rights in the nature of intellectual property rights or value additions. They are an exception to Section 53 (prohibition of issue of shares at a discount) and can be issued at a discount or for consideration other than cash. Thus, statement (III) is correct.
- **Statement (IV)**: As per Section 54(1)(a), the sweat equity shares must be of a class of shares already issued by the company. Thus, statement (IV) is correct.

Since all statements I, II, III, and IV are correct, they are represented by Option D.

Hence, **Option D** is the correct answer.

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