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

Which of the following statements are not correct in connection with shareholding in an Indian bank under provision of BR Act?

  1. There is no ceiling on a person’s holding of shares.

  2. No shareholder can exercise voting rights in excess of 10% of total voting rights.

  3. The provision of 10% ceiling restricts the transfer and registration of such transfer.

  4. The provisions of Companies Act also govern transfer of shares of banking companies.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Correct Answer: The provision of 10% ceiling restricts the transfer and registration of such transfer.

Multiple choice

Banks are required to transfer a part of their profits to a Reserve Fund

(a) u/s 17-1 of B R Act (b) and the amount is to be 20% of such profits (c) after payment of dividend (d) and commercial banks operating in India should transfer not less than 25 per cent of the ‘net profit’

  1. (a) to (d) all

  2. (a), (b) and (c) only

  3. (a), (b) and (d) only

  4. (b), (c) and (d) only
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

In terms of section 17 (1) and 11 (1)(b) (ii) of the Banking Regulation Act, 1949, banks are required to transfer, out of the balance of profit as disclosed in the profit and loss account, a sum equivalent to not less than 20 per cent of such profit to Reserve Fund. This provision is a minimum requirement.  Considering the imperative need for augmenting the reserves, it was advised vide circular DBOD.No.BP.BC.24/21.04.018/ 2000-2001 dated September 23, 2000 that all scheduled commercial banks operating in India (including foreign banks) should transfer not less than 25 per cent of the ‘net profit’ (before appropriations) to the Reserve Fund with effect from the year ending 31 March, 2001. 

Multiple choice

A private company should have a minimum paid-up capital or Rupees _________.

  1. Five Crore

  2. Five Lakh

  3. One Crore

  4. One Lakh
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

According to the Companies Act, 2013, every company has to give a declaration to the Registrar of Companies (RoC), stating its paid-up capital is not less than Rs. 5 lakh in the case of public companies (the listed ones, as well as those that have raised money from the market through debt); and not less than Rs. 1 lakh in the case of private companies. This declaration is necessary for obtaining a commencement certificate for business.

Multiple choice

Which of the following facts is incorrect regarding a securitisation company?

  1. It is a company registered under Companies Act.

  2. It has to obtain registration with SEBI for undertaking securitisation.

  3. It can set up a separate trust for different schemes of securitisation.

  4. Its minimum paid up capital is Rs. 100 crores and net worth is at least 15% of the acquired assets.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The regulations exclude few persons from the application of the regulations. They are specific family trusts, ESOP trusts (conditions), employee welfare trusts, gratuity trusts, holding companies‘ within the meaning of Section 4 of the Companies Act, 1956, securitisation trusts, securitisation company, reconstruction company registered with RBI, any such pool of funds which is directly regulated by any other regulator in India.

Multiple choice

A bank can invest in the shares of a company as pledge, mortgage or absolute owner maximum to the extent of

  1. 30% of the paid-up capital of the bank or 30% of the paid-up capital of the company, whichever is lower

  2. 30% of the paid-up capital of the bank or 30% of the paid-up capital and reserves of the company, whichever is lower

  3. 30% of the paid-up capital and reserves of the bank or 30% of the paid-up capital of the company, whichever is lower

  4. 30% of the paid-up capital of the bank or 30% of the paid-up capital of the company, whichever is higher
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

In terms of Section 19(2) of the Banking Regulation Act, 1949, banks should not hold shares in any company except as provided in Sub-section (1) whether as pledgee, mortgagee or absolute owner of an amount exceeding 30% of the paid-up share capital of that company or 30% of its own paid-up share capital and reserves, whichever is less.

Multiple choice

Returns relating to shareholding of the Chairman, Managing Director or Chief Executive Officer of every banking company are to be sent to

(a) RBI (b) SEBI (c) Registrar of Companies

  1. (a), (b) and (c) all

  2. (b) and (c) only

  3. (a) and (b) only

  4. neither (b) nor (c)
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Every Chairman, Managing Director or Chief Executive Officer, by whatever name called, of a banking company shall furnish to the Reserve Bank through that banking company returns containing full particulars of the extent and value of his holding of shares. Thus, option 4 is correct.

Multiple choice

For a securitization company, which of the following conditions is applicable for their capital and capital adequacy ratio?

  1. Minimum capital of Rs. 200 cr and capital adequacy ratio of 15% of the financial assets acquired by the company

  2. Minimum capital of Rs. 100 cr and capital adequacy ratio of 15% of the financial assets acquired by the company

  3. Minimum capital of Rs. 100 cr and capital adequacy ratio of 10% of the financial assets acquired by the company

  4. Minimum capital of Rs. 200 cr and capital adequacy ratio of 10% of the financial assets acquired by the company
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Every Securitization Company or Reconstruction Company shall maintain, on an ongoing basis, a capital adequacy ratio, which shall not be less than fifteen percent of its total risk weighted assets and minimum capital of Rs. 100 cr.

Multiple choice

(a) An equity share is a share which is not a preference share. (b) A preference share is one which gets regular dividend irrespective of profit position and preference in case of liquidation. (c) Debenture is a document by which a company acknowledges its indebtedness. (d) Trust receipt is a document that is an undertaking by the borrower when the goods are released by the bank to the borrower without payment being made by the borrower.

  1. (a) to (d) are correct.

  2. (a), (b) and (c) are correct.

  3. (a), (c) and (d) are correct.

  4. (b), (c) and (d) are correct.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Preference share is a share which entitles the holder to a fixed dividend, whose payment takes priority over that of ordinary share dividends. Thus, the given definition is not true.

Multiple choice

On what basis is dividend declared in a co-operative store to its members?

  1. Share capital

  2. Number of shares purchased

  3. Amount of patronage given

  4. Amount of paid up capital

  5. Equally to all members
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The profit of co-operative society is distributed to the members in the proportion of purchases made by the them, and not on shares held by them. The total amount of your patronage dividend is based upon all the purchases you made during the fiscal year, divided by the total purchases made by all active owners, then the dividend is multiplied by your share (%).