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 functional area of management financial management nature and significance of management organisation of commerce and management business studies

Higher dividends per share is associated with  ______________.

  1. High Earning, High Cash Flows, Unusable Earnings and Growth Opportunities

  2. High Earning, High Cash Flows, Stable Earnings and Growth Opportunities

  3. High Earning, High Cash Flows, Stable Earnings and Lower Growth Opportunities

  4. High Earning, Low Cash Flows, Stable Earnings and Lower Growth Opportunities
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

There are two primary causes for increases in a company’s dividend per share payout.

 The first is simply an increase in the company's net profits out of which dividends are paid. 
The second is a shift in the company’s growth strategy that leads the company to decide to expend less of its earnings in seeking growth and expansion, thus leaving a larger share of profits available to be returned to equity investors in the form of dividends.

Multiple choice functional area of management financial management nature and significance of management organisation of commerce and management business studies

Which of the following methods does a firm adopt to avoid dividend payments?

  1. Share splitting

  2. Declaring bonus shares

  3. Rights issue

  4. All of the above

  5. Both (A) and (B) above
Reveal answer Fill a bubble to check yourself
E Correct answer
Explanation

Share splitting and bonus shares are methods used to adjust the capital structure or provide value to shareholders without paying out cash dividends. Both are common corporate strategies to manage liquidity and shareholder expectations.

Multiple choice functional area of management financial management nature and significance of management organisation of commerce and management business studies

ABC Ltd. has declared $40$% dividend. Which one of the following does it mean?

  1. The company has declared $40$% on net profit as dividend
  2. The company has declared $40$% of profit after tax as dividend
  3. The company will provide dividend $40$% on issued capital
  4. The company will provide dividend $40$% on paid-up capital
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation
  • Dividend is that portion of profit which is distributed to shareholders.
  • Paid-up capital means the total amount of called up share capital which is actually paid to the company by the members. Dividend is declared on the paid-up form of capital.
  • Thus the company will provide dividend of 40% on paid-up capital.
Multiple choice functional area of management financial management nature and significance of management organisation of commerce and management business studies

The dividend policy of a company is evolved within the framework of ___________.

  1. corporate law

  2. taxation

  3. managerial considerations

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

Dividend policy is influenced by a complex interplay of corporate law (legal limits), taxation (tax implications for shareholders), and managerial considerations (growth needs and cash flow).

Multiple choice functional area of management financial management nature and significance of management organisation of commerce and management business studies

The word 'dividend' includes the following besides cash

  1. Distribution of rights to acquire shares in another company is distribution of dividend

  2. Where dividend is paid in the form of shares in another company, the dividend must be values at the market value of shares

  3. Bonus shares issued by capitalising profits are not dividend

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

Under tax law and accounting standards, the definition of dividend is broad and can include various forms of distributions beyond simple cash, including rights to shares or specific property distributions.

Multiple choice functional area of management financial management nature and significance of management organisation of commerce and management business studies

'Dividend' is defined under the fol1lowing section if Income Tax Act, 196

  1. Section 2(20)

  2. Section 2(22)

  3. Section 5(22)

  4. Section 5(33)
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Section 2(22) of the Income Tax Act, 1961 defines 'dividend' for taxation purposes, encompassing various forms of corporate distributions beyond just cash payouts.

Multiple choice functional area of management financial management nature and significance of management organisation of commerce and management business studies

When dividend out of stock premiums is to be declared __________.

  1. stockholders need not be informed

  2. stockholders need not be consulted about them

  3. stockholders must be informed and consulted about them

  4. Both (a) and (b)
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Dividends paid out of share premium accounts are subject to specific legal and regulatory requirements, which typically mandate that shareholders be informed and consulted regarding the use of these capital reserves.

Multiple choice functional area of management financial management nature and significance of management organisation of commerce and management business studies

When a dividend is paid at the usual rate, it is designated as a ________.

  1. regular dividend payment

  2. stable dividend policy

  3. extra dividend policy

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

A regular dividend is a payment made by a company to its shareholders at a consistent, predictable rate, usually on a quarterly or annual basis.

Multiple choice functional area of management financial management nature and significance of management organisation of commerce and management business studies

Corporations encourage irregular dividend payments due to

  1. Unsuccessful operations

  2. Earnings are fluctuating

  3. Impossibility to pay dividend regularly

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

Irregular dividend payments are often a consequence of unstable financial performance, where the company cannot guarantee a fixed payout due to fluctuating earnings or operational challenges.

Multiple choice functional area of management financial management nature and significance of management organisation of commerce and management business studies

Market price of equity shares ________ if the benefits from a decision exceed the cost involved.

  1. increases

  2. decreases

  3. equalizes

  4. both a and c
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Market price of equity shares will increase because if benefit from a decision exceeds the cost involved, wealth maximization will increase hence if revenue covers the cost then ultimately earning per share will increase.

Multiple choice functional area of management financial management nature and significance of management organisation of commerce and management business studies

Who formulated the following model for estimating the market price of equity share?
$P = \dfrac {D + \dfrac {R _{a}}{R _{c}}(E - D)}{R _{c}}$
Where, $P =$ Market price of equity share
$D = DPS$
$E = EPS$
$E - D =$ Retained earning per share
$R _{a} =$ Internal rate of return on investment
$R _{c} =$ Cost of capital.

  1. Modigliani-Miller

  2. Myron-Gordon

  3. James E. Walter

  4. Clarkson and Elliot
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation
Professor James E. Walter that the choice of dividend policies almost always affects the value of the enterprise. His model shows clearly the importance of the relationship between the firm’s internal rate of return (r) and its cost of capital $(k)$ in determining the dividend policy that will maximize the wealth of shareholders.

Walter’s formula to calculate the market price per share (P) is:

$P=\cfrac {\cfrac {D}{k}+\cfrac {E-D}{k} \times r} {k}$

P = market price per share
D = dividend per share
E = earnings per share

Multiple choice functional area of management financial management nature and significance of management organisation of commerce and management business studies

Dividend warrants must be posted within ______ days from the date of declaration of dividend.

  1. 24

  2. 34

  3. 30

  4. 45
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Under standard corporate law regulations, companies are required to dispatch dividend warrants within 30 days of the declaration date to ensure timely payment to shareholders.

Multiple choice business organisation securities exchange board of india (sebi) functions of sebi sebi securities and exchange board of india (sebi)

To get listed in a stock exchange, the company should have issued for public subscription at least the minimum prescribed percentage of its share capital (49 percent).

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

To get listed in a stock exchange, the company should have issued for public subscription at least the minimum prescribed percentage of its share capital(49%) - this is a true statement. Allotment of shares is done on a fair and reasonable manner. In order to get listed, the company must comply with certain terms and conditions. Basic function of stock exchange are providing Liquidity and Marketability to existing securities.

Multiple choice business organisation securities exchange board of india (sebi) functions of sebi sebi securities and exchange board of india (sebi)

A company which desires to list its securities in a stock exchange, should offer at least _____ percent of its issued capital for public subscription.

  1. sixty

  2. fourty

  3. fifty

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

A company which desires to list its securities in a stock exchange, should offer at least 60 percent of its issued capital for public subscription. Certain rules and regulations are to be followed by the company which desires to list its securities in a stock exchange. The company should abide by all the terms and conditions mentioned by the stock exchange in order to list its securities.

Multiple choice book keeping and accountancy accounting equation and business transactions introduction to final accounts meaning, objectives and importance of final accounts meaning, objectives, importance and preparation of final accounts

A company purchased the following assets and paid through 1,00,000 fully paid equity shares of Rs. 10 at a premium of Rs. 2.
Building - Rs. 5,00,000
Machinery - Rs. 4,00,000
Stock in trade - Rs. 1,00,000
In the context of funds flow statement, this transaction will result in.

  1. Funds in flow of Rs. 10,00,000

  2. Funds in flow of Rs. 12,00,000

  3. Funds in flow of Rs. 1,00,000

  4. Funds in flow of Rs. 9,00,000
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Funds flow refers to the movement of working capital. The purchase of assets (Building, Machinery, Stock) using shares is a non-current transaction. However, the question asks for funds flow; since the shares were issued for assets, the only 'funds' (working capital) impact is the increase in stock (current asset) by 1,00,000, resulting in a net inflow of 1,00,000.