Commerce Accountancy · Economics

Equity Shares and Capital

505 Questions

Equity shares and capital topics deal with corporate share issuance, forfeiture rules, dividend distributions, and yield calculations. Questions require an understanding of financial instruments like preference shares and call options. These concepts are essential for accountancy and commerce examinations.

Share valuationDividend yieldPreference sharesShare forfeitureCapital structure

Equity Shares and Capital Questions

Multiple choice

What is the effect of issue of bonus shares?

  1. The profits are converted into share capital.

  2. The debt is converted into equity.

  3. The company's shares are redeemed.

  4. The equity is converted into debt.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

By the issue of bonus shares, the profits of the company are converted into share capital. The bonus shares are allotted by capitalizing the reserves and surplus. Hence, issue of bonus shares results in the conversion of the company's profits into share capital.

Multiple choice

Madhav, a shareholder of 1000 shares in Kumar Ltd. paid the amount due on first call and final call along with allotment money. The amount payable per share is Rs.10, which has to be paid equally on application, allotment and calls (payable on 1 January, 1 April, 1 August and 31 December). Calculate the interest payable to him on calls in advance.

  1. Rs. 100

  2. Rs. 162.50

  3. Rs. 185.42

  4. Rs. 225

Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Advance of first call = Rs. 2500, interest rate @ 6% p.a, time duration 1 April-1 August = 4 months Interest = Rs. 50 Advance of second call = Rs. 2500, interest rate @ 6% p.a, time duration 1 April-31 December = 9 months Interest = Rs. 112.50 Total Interest Rs. 162.50 Option (A) is incorrect. You may take second call period 4 months, i.e. September- December. Option (C) is incorrect. You may take interest rate @5% applicable on calls in arrears. Option (D) is incorrect. You may take combined period of 9 months for both advances.

Multiple choice

Zenith Ltd. purchased furniture from Divesh for Rs. 2,20,000. 25% of the amount due was paid by cash and balance by issuing equity shares of Rs. 10 each at 20% premium. Calculate number of shares issued to Divesh.

  1. 13750

  2. 16500

  3. 22000

  4. 18333
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Amount payable through shares = Rs.(2,20,000-55,000) = Rs. 1,65,000 Number of shares = 1,65,000/12 = 13750 shares Option (B) is incorrect. You may take 1,65,000/10. Option (C) is incorrect. You may take 2,20,000/10. Option (D) is incorrect. You may take 2,20,000/12.

Multiple choice

Which of the following is/are correct?

  1. The entire surplus would be distributed to policyholders.

  2. The entire surplus would be distributed to shareholders.

  3. A portion of the surplus would be left for distribution to shareholders.

  4. All of the above
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Earned surplus is the sum of a company's profits, after dividend payments, since the company's inception. A portion of the surplus would be left for distribution to shareholders.

Multiple choice

The dividends declared under contribution method can be

  1. paid by cash or by reducing future premiums

  2. allowed to purchase non-forfeitable paid up additions

  3. accumulated with interest to be withdrawn at the option of the policy holder

  4. None of these
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The dividends declared under contribution method can be any of the above.

Multiple choice

U/s 35-A of the Banking Regulation Act, a banking company, before allowing transfer of shares, is required to obtain RBIs acknowledgment if such transfer results in holding more than _____ of the paid-up capital of the bank.

  1. 2%

  2. 5%

  3. 7.5%

  4. 10%
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Prior approval of RBI is required if acquisition together with voting rights exceeds 5% of the paid-up share capital. Acknowledgement by RBI: Banks, when receiving more than 5% of their paid-up capital for transfer to one party must refer to RBI.

Multiple choice

Which of the following is correct in the context of holding of share capital in an RRB?

  1. Central Govt. 50%, State Govt. 35% and sponsoring bank 15%

  2. Central Govt. 35%, State Govt. 15% and sponsoring bank 50%

  3. Central Govt. 50%, State Govt. 15% and sponsoring bank 35%

  4. Central Govt. 35%, State Govt. 50% and sponsoring bank 15%
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

In RRBs, 50% share shall be held by the central government, 15% by the concerned state government and 35% by the sponsor bank. The RRB Amendment Act 2014 has allowed RRBs to raise their capital from sources other than the central and state governments and sponsor banks. In such a case, the combined shareholding of the central government and the sponsor bank cannot be less than 51%. Further, if the shareholding of the state government in the RRB is reduced below 15%, the central government would need to consult the concerned state government.

Multiple choice

Any transfer of shares in a banking company which exceeds ____ of paid up capital of the bank requires acknowledgment by _____ before registration in the books of the company.

  1. 5%, SEBI

  2. 5%, RBI

  3. 10%, RBI

  4. 10%, Company Law Board
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The RBI guidelines on acknowledgement for acquisition or transfer of shares issued on February 3, 2004 will be applicable for any acquisition of shares of 5% and above of the paid-up capital of the private sector bank.

Multiple choice

In ______, there is facility that if the dividend payable is not paid, it will accumulate. In addition, the share will be exchanged with an equity share.

  1. redeemable preference share

  2. participating preference share

  3. cumulative convertible preference share

  4. irredeemable preference share

Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Cumulative convertible preference shares are a type of preference shares where the dividend payable on the same accumulates, if not paid. After a specified date, these shares will be converted into equity capital of the company.

Multiple choice

What is the amount of ceiling on payment of brokerage or commission or discount, or remuneration on sale of shares by a banking company?

  1. 1% of the authorized capital

  2. 2% of the issued capital

  3. 2.5% of the paid value of the shares

  4. 5% of the subscribed share capital

  5. There is no ceiling.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

According to the section 13 of Banking Regulation Act, 1949, notwithstanding anything to the contrary contained in [sections 76 and 79 of the Companies Act, 1956 (1 of 1956)], no banking company shall pay out directly or indirectly by way of commission, brokerage, discount or remuneration in any form in respect of any shares issued by it, any amount exceeding in the aggregate two and one-half per cent of the paid-up value of the said shares.

Multiple choice

Which of the following statements is/are correct about the disinvestment policy in India?

  1. While pursuing disinvestment, the Government should have management control of the Public Sector Undertakings and holding at least 51% equity.
  2. The Department of Expenditure identifies CPSEs and submit proposal to Government in cases requiring Offer for Sale of Government equity.
  3. The listed profitable Central Public Sector Enterprises not meeting mandatory shareholding of 12% are divested by the CPSEs through issue of fresh shares.

  1. Only 1

  2. 2 and 3

  3. Only 3

  4. 1, 2 and 3
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Statement 1 is correct. The salient features of the disinvestment policy in India are: (i) Citizens have every right to own part of the shares of Public Sector Undertakings. (ii) Public Sector Undertakings are the wealth of the Nation and this wealth should rest in the hands of the people. (iii) While pursuing disinvestment, Government has to retain majority shareholding, i.e. at least 51% and management control of the Public Sector Undertakings. Statement 2 is wrong because the department of disinvestment is to identify CPSEs in consultation with respective administrative Ministries and submit proposal to Government in cases requiring Offer for Sale of Government equity. Statement 3 is wrong. The already listed profitable CPSEs (not meeting mandatory shareholding of 10%) are to be made compliant by 'Offer for Sale' by Government or by the CPSEs through issue of fresh shares or a combination of both, though it has to reach 25% of public shareholding.