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

Redemption of preference shares

  1. constitutes reduction of authorised share capital

  2. constitutes reduction of Issued share capital

  3. constitutes reduction of subscribed share capital

  4. does not constitute reduction of authorised share capital
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Authorized Share Capital is the maximum amount of Share capital that a company can issue during its lifetime. Redemption of prefernce share doesnot cause any reduction in this maximum limit, i.e. Authorised Share Capital. Redemption of preference shares causes causes a redution in Subscribed and Issued Share Capital of a company.

Multiple choice

To redeem 15% Pref. Shares of Rs. 1, 00, 000 at 5% premium, Rs. 10, 000, 12%. Debentures of Rs. 100 each are issued at a discount of 10%. The amount to be transferred to Capital Redemption Reserve is

  1. nil

  2. Rs. 90, 000

  3. Rs. 91, 000

  4. Rs. 1, 00, 000
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The proceeds of fresh issue of debentures is not to be utilised for redemption of preference shares. An amount equal to face value of preference shares is to be transferred to the Capital Redemption Reserves if shares are redeemed out of divisible profits.Thus, in the given case, amount to be transferred to CRR would be Rs 1,00,000 since the proceeds of debentures cannot be utilised for the redemption of preference shares.

Multiple choice

Listed equity shares are to be valued at

  1. the average price of the share in NSE

  2. the lowest price of the day in BSE

  3. cost price or current market price whichever is lower

  4. the last traded price in the stock exchange where the security is principally traded
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

As per SEBI regulations, listed equity shares must be valued at the last traded price on the stock exchange where the security is principally traded. This ensures fair and current market valuation. Average price (NSE) or lowest price (BSE) are not the prescribed methods. Cost price is irrelevant for daily valuation. The LTP method provides the most accurate current market value for NAV calculation.

Multiple choice

It is compulsory to quote PAN number,

  1. if the investor has PAN

  2. if the investment is Rs. 1 lac or more

  3. if the investment is Rs. 50000 or more

  4. if the investor is liable to pay tax in that year
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

As per Indian regulations, quoting PAN number is compulsory for investments of Rs. 50000 or more. This requirement is part of KYC (Know Your Customer) norms and helps prevent tax evasion and money laundering. The PAN requirement is based on the investment amount, not on whether the investor has a PAN or tax liability.

Multiple choice

If an investor fails to claim the redemption proceeds after 3 years of due date, he has the right to receive an amount equal to

  1. prevailing NAV

  2. face value of the unit

  3. due date NAV plus interest @15% p.a.

  4. NAV at the end of three years after the due date
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

As per SEBI regulations, if an investor fails to claim redemption proceeds within 3 years from the due date, they are entitled to receive the NAV prevailing at the end of the three-year period. This protects investors from losing unclaimed amounts while accounting for market movements over time.

Multiple choice

What is an equity warrant?

  1. It is nothing but an equity share of a company.

  2. It is a debit instrument that offers fixed interest rate.

  3. It is an instrument that gives the holder the right to purchase equity shares in a company at a fixed price in future.

  4. None of the above
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Equity warrant is an instrument that gives the holder the right to purchase equity shares in a company at a fixed price in future. 

Multiple choice

A unit holder purchased 200 units of a mutual fund at NAV of Rs.12, each. There was no entry load. The fund purchased securities worth Rs.2400 using this money. After one year the fund had 20,000 units. The value of unit holder's holdings in the mutual fund would be

  1. Rs. 2400

  2. 1% of the value of fund's portfolio at the time

  3. 1% of the net assets of the fund at that time

  4. Cannot say with the given data
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

When you buy mutual fund units, you own a percentage of the total fund proportional to your investment. You invested Rs.2,400 out of what became a Rs.2,40,000 fund (20,000 units × Rs.12 NAV = Rs.2,40,000). Your 200 units represent exactly 1% of the total 20,000 units (200/20,000 = 1%). Therefore, your holding value is 1% of the fund's net assets at that time - option C is correct. Option A would only be true if NAV remained exactly Rs.12, which is not guaranteed. Option B is meaningless without specifying time. The data is sufficient for calculation.

Multiple choice

M Ltd. holds 35% nominal value of paid-up capital in O Ltd. N Ltd. is also holding 30% paid-up capital in O Ltd. M Ltd. holds 80% of paid-up capital in N Ltd. What is the relationship between M Ltd. and O Ltd.?

  1. M Ltd. is investor, and O Ltd. is associate company of M Ltd.

  2. M Ltd. is holding company, and O Ltd. is subsidiary of M Ltd.

  3. M Ltd. is co-venturer, and O Ltd. is joint venture of M Ltd.

  4. No relationship between M Ltd. and O Ltd

  5. None of these
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

As per section 4 of Companies Act, 1956, the company jointly under the control of two companies is subsidiary company of parent company that is a subsidiary company of main parent company. M Ltd. is the parent company in this case. M Ltd. and O Ltd. is holding subsidiary relationship between each other. The correct option is (2). This is not a joint venture because O Ltd. is not under the joint control of M Ltd. and N Ltd.

Multiple choice

As per the new guidelines issued by SEBI, companies are required to list shares within how many days of the closure of the Initial Public Offers (IPOs)?

  1. 60 days

  2. 12 days

  3. 30 days

  4. 45 days

  5. None of these
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

SEBI (Securities and Exchange Board of India) guidelines require companies to list their shares within 30 days of the closure of IPOs. This T+30 timeline was introduced to ensure quicker trading availability for investors. Earlier norms allowed longer periods (60+ days). 12 days would be too short, and 45 days exceeds the regulatory requirement.

Multiple choice

XYZ company holds 50% of voting securities of ABC company. XYZ is

  1. a subsidiary company

  2. a holding company

  3. an associated company

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

A company may become a holding company by acquiring 50% voting stock in another company to exercise control of its operations. Thus, XYZ is a holding company. 

Multiple choice

Redeemable capital shares

  1. are based on interest

  2. are not based on interest

  3. are ordinary shares

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

Redeemable capital shares include finance obtained on the basis of any security or obligation not based on interest, other than an ordinary share of a company.