Commerce Accountancy · Economics

Equity Shares and Capital

424 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 organisation of commerce and management sources of business finance - 2 equity and preference shares equity shares and preference shares non-institutional sources - long-term

Which one of the statements applies only to Preference Shareholders?

  1. Shareholders risk the loss of investment.

  2. Shareholders bear the risk of no dividends in the year of losses.

  3. Shareholders usually have the right to vote.

  4. Dividends are usually a fixed amount in every financial year.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The preference shares are the ones which preferential rights like prior payment of dividend and return of capital.The dividend also remains the same for every financial year and the company has a fixed liability to pay the interest and the amount of profits cannot define the payment of interest on preference shares.

Multiple choice organisation of commerce and management sources of business finance - 2 equity and preference shares equity shares and preference shares non-institutional sources - long-term

The money raised by issue of preference shares is called as _________ share capital.

  1. Equity

  2. Preference

  3. Right

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

The capital raised by issue of preference shares is called as preference share capital.  The preference share holders enjoy a preferential position over equity shareholder in receiving fixed dividend out of the net profits of the company and receiving capital at the time of liquidation.

Multiple choice organisation of commerce and management sources of business finance - 2 equity and preference shares equity shares and preference shares non-institutional sources - long-term

The rate of dividend on preference shares is generally _________ than the rate of interest on debentures.

  1. lower

  2. higher

  3. equal

  4. medium
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation
The capital raised by issue of preference shares is called preference share capital.Debentures are an important instrument for raising long term debt capital. A company can raise funds through issue of debentures, which bear a fixed rate of interest. The rate of dividend on preference shares is generally higher than the rate of interest on debentures.
Multiple choice organisation of commerce and management sources of business finance - 2 equity and preference shares equity shares and preference shares non-institutional sources - long-term

Preference shares resemble debentures as they bear ________ rate of return.

  1. fixed

  2. fluctuating

  3. higher

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

The capital raised by issue of preference shares is called preference share capital.Debentures are an important instrument for raising long term debt capital. Both resembles each other as they bear fixed rate of return on the capital that has been raised.

Multiple choice organisation of commerce and management sources of business finance - 2 equity and preference shares equity shares and preference shares non-institutional sources - long-term

For a company to be subsidiary the other company should hold _____% of its shares.

  1. more than 50

  2. more than 40

  3. more than 30

  4. more than 20
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

For a company to be subsidiary the other company should hold 50% of its shares. Subsidiary company is also known as the nominee of the holding company.

Multiple choice organisation of commerce and management sources of business finance - 2 equity and preference shares equity shares and preference shares non-institutional sources - long-term

If the guarantee company having share capital, the liability of shareholders will be ___________.

  1. guarantee + unpaid value of shares

  2. unpaid value of shares

  3. unlimited

  4. none of the above
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

A guarantee company is a type of corporation designed to protect members from liability. Guarantee companies often form when non-profit organizations wish to attain corporate status. If the guarantee company having share capital, the liability of share holders is guarantee plus the unpaid value of shares.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) types of issue of debentures types of debentures meaning and kinds of debentures

Use the following information for questions given below:
Consider the following data pertaining to A Ltd. as on March $31, 2006$:
Share Capital
Issued, subscribed and called-up $(20,000$ shares of $Rs. 100$ each) $Rs. 20,00,000$
Calls-in-arrear $Rs. 10,000$
Profit and loss account (Cr.) as on April $01, 2005\ Rs. 1,20,000$
Profit for the year $Rs. 2,60,000$
The company wants to create a Debenture Redemption Reserve and to transfer $Rs. 50,000$ every year out of profits to redeem the debentures.
The company declared $10$% dividends.
The amount of dividend declared will be _______________.

  1. $Rs. 33,000$
  2. $Rs. 21,000$
  3. $Rs. 1,99,000$
  4. $Rs. 2,00,000$
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The dividend is calculated on the paid-up capital. Issued capital is 20,00,000, but calls-in-arrear are 10,000, so paid-up capital is 19,90,000. 10% of 19,90,000 is 1,99,000.

Multiple choice book keeping and accountancy company accounts part - 2 (accounting for debentures) types of issue of debentures types of debentures meaning and kinds of debentures

Which of the following statement is not true?

  1. Interest on debenture holders is to be paid whether there is profit or loss to the company

  2. There is restriction on utilization of premium on issue of shares

  3. Company can buy back its debentures

  4. Interest on debenture is not shown in Profit and Loss A/c
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Interest on debentures is a charge against profit, meaning it must be paid regardless of profit or loss and is recorded in the Profit and Loss Account as an expense.

Multiple choice commercial studies sources of business finance - 2 debentures / bonds debentures non-institutional sources - long-term

Debenture holders may receive ____ on their investment.

  1. interest

  2. dividend

  3. bonus

  4. (B) & (C)
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Debentures are issued to the investors from which funds are raised. They are given debenture receipt as a promise of repayment of capital bearing a fixed rate of interest. Hence debenture holders receive interest on their investment.

Multiple choice commercial studies sources of business finance - 2 debentures / bonds debentures non-institutional sources - long-term

Which of the following security cannot be forfeited for non-payment of allotment or call money?

  1. Equity shares

  2. Preference shares

  3. Debentures

  4. Both (A) & (B)
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation
Generally total face value of debenture is demanded by company in installments I.e. Debenture application, Debenture allotment and Debentures calls accounts. It is usual that some of the debenture-holders fail to pay the amount of different installments when these are demanded by company. Such unpaid calls (installments) are called ‘Calls in arrears’. Under the provisions of Companies Act, 1956 debentures cannot be forfeited by company.

Because under section 122 of the Companies Act 1956 a contract with a company to take up and pay for any debenture may be enforced by a decree for specific performance. For the realisation of calls in arrears on debentures the company can only file a suit in the court. Company can charge interest on calls-in-arrears as provided in prospectus.

Sometimes, certain debenture-holders pay money against those calls also which have not yet en demanded by company. In such cases the amount received is credited to calls in advance account. If provided in prospectus, the company pays interest on this amount to debenture-holders at a specified rate. Interest is always calculated for the period, the advance has been received.
Multiple choice book keeping and accountancy accounts of 'not for profit' concerns accounting record of non-trading organisations features of not-for-profit organisation meaning and characteristics of not-for-profit organisation

The surplus generated in the form of excess of income over expenditure is not distributed amongst the _________.

  1. owners

  2. members

  3. directors

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

Not-for-Profit organisations refer to the organisations that are used for the welfare of the society and are set up as charitable institutions which function without any profit motive. Their main aim is to provide service to a specific group or the public at large. Normally, they do not manufacture, purchase or sell goods and may not have credit transactions. Hence, they need not maintain many books of account (as the trading concerns do) and Trading and Profit and Loss Account.

The surplus generated in the form of excess of income over expenditure is not distributed amongst the members. It is simply added in the capital fund. This is one of the main characteristic of such organisations

Multiple choice business organisation introduction to financial markets concept of financial market meaning and definition of financial market concepts and functions of financial markets

Paid dividends to common stockholders Rs 67, 600, 000 and common shares outstanding 55, 000, 000 then dividend per share will be _________.

  1. Rs 1.23

  2. Rs 0.81

  3. Rs 2.12

  4. Rs 2.78
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Dividend per share is calculated by dividing total dividends paid by the number of common shares outstanding. Here, 67,600,000 / 55,000,000 equals approximately 1.229, which rounds to 1.23.

Multiple choice commerce business finance financial planning financing financial management

If on account of inadequacy of profits, a company wants to pay dividends out of previous year's reserves, it has to follow the rules made by

  1. Central Government

  2. State Government

  3. Articles of Association

  4. Memorandum of Association
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Under the Companies Act, if a company intends to declare dividends out of reserves due to inadequate profits, it must comply with specific rules and regulations prescribed by the Central Government.

Multiple choice commerce business finance financial planning financing financial management

Cash dividends are ordinarily paid from _______.

  1. current earnings

  2. retained earnings

  3. paid-in-surplus

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

Cash dividends are typically paid out of the current earnings of the company, reflecting its recent profitability and financial health.

Multiple choice book keeping and accountancy adjustments drawing account of partners interest on drawings interest on partner's drawings and capital

A Ltd. has allotted $20,000$ shares to the applicants of $28,000$ shares on pro-rata basis. The amount payable on application is $Rs. 2$. M applied for $420$ shares. The number of shares allotted and the amount carried forward for adjustment against allotment money due from Mr. X will be ______________.

  1. $60$ shares; $Rs. 120$
  2. $340$ shares; $Rs. 160$
  3. $300$ shares; $Rs. 200$
  4. $300$ shares; $Rs. 240$
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Ratio of allotment = 20,000/28,000 = 5/7. For 420 shares applied, allotment = 420 * (5/7) = 300 shares. Excess application money = (420 - 300) * 2 = 120 * 2 = 240. This excess is adjusted against allotment.