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

Many times we read in financial newspapers/ magazines about 'Share Swap' done by big corporates. What is 'Share Swap'?

  1. A business take over in which acquiring company uses its own stock to pay for the acquired company
  2. When a company uses its own shares to get some short term loan for working capital requirement, it is known as share swap
  3. When companies are required to float a new issue to earn capital for their expansion programmes, each share holder gets some additional preferential shares. The process of the allotment of preferential share is known as Share swap

  1. Only 1

  2. Only 2

  3. Only 1 and 2

  4. Only 3
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

A 'Share Swap' in corporate finance refers to an acquisition method where the acquiring company pays for the target company using its own shares rather than cash.

Multiple choice

Which of the following is not a remedy for correcting undercapitalisation?

  1. Issuing of new shares and debentures

  2. Increase in Par Value of shares

  3. Iss of bonus shares to the equity shareholders

  4. Debentures carrying a higher rate of interest may be redeemed
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Right answer because it is a remedy for correcting overcapitalisation.In overcapitalisation the actual profits are not sufficient to provide a fair rate of return on share capital, the capital has to be decreased in this case, redemption of debentures decreases the capital invested and also increases earnings as interest is not to be paid.

Multiple choice

A company wants to make payment of dividend warrants to a large number of shareholders. Which of the following will be used by it?

  1. Debit clearing

  2. Electronic clearing system

  3. Electronic clearing system (debit)

  4. Electronic clearing system (credit)
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

At times, a large number of shareholders may face the following problems under the present system of payment of dividend by mailing of warrants, through post. a) Loss in transit, b) Fraudulent encashment by third parties, c) Postal delay

To avoid these problems, the Reserve Bank of India has introduced the Electronic Clearing Service (ECS) for payment of dividend/interest etc, which ensures the shareholders timely credit of dividends directly into their Bank Account.

Multiple choice

A bank can hold as mortgagee, pledgee or absolute owner of shares of a company, for a maximum extent of

  1. 30% of paid<font size="2">-</font>up capital of the bank and 30% of paid-up capital of the company, whichever is lower

  2. 30% of paid<font size="2">-</font>up capital of the bank and 20% of paid-up capital of the company, whichever is higher

  3. 30% of paid<font size="2">-</font>up capital of the bank or 30% of paid-up capital of the company, whichever is higher

  4. 30% of paid<font size="2">-</font>up capital + reserves of the bank and 30% of paid<font size="2">-</font>up capital of the company, whichever is lower
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The Bank should not hold more than 30% of the paid-up capital of the company or 30% of its own paid-up capital, whether as pledgee, mortgagee or absolute owner. 

Multiple choice

An equity share can commonly referred to as

  1. ordinary share

  2. debenture

  3. convertible share

  4. security receipt

  5. preference share
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

This is a share that is not a preferred share and does not have any predetermined dividend amounts.

Multiple choice

Srei Ltd. issued Rs.1,25,000 equity shares of Rs. 10 each. The amount payable on these shares is as follows:

– 2 on appIication – 3 on allotment – 2 onfirstcalI – Balance in final call

Suman, who has Rs. 5,000 shares, paid full value of shares with the allotment money. The amount to be debited to the bank account at the time of receipt of first call money will be

  1. Rs. 2,50,000

  2. Rs. 2,35,000

  3. Rs. 2,45,000

  4. Rs. 2,40,000
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The first call will be received for 1,20,000 shares @ Rs. 2, i.e. Rs. 2,40,000.