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

The shares issued to existing shareholders when reserves are capitalised are:

  1. Right issue

  2. Bonus shares

  3. Preference shares

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

When a company capitalizes its reserves (like share premium, retained earnings), it issues FREE shares to existing shareholders in proportion to their existing holdings. These are called BONUS shares. Unlike rights shares which require payment, bonus shares are issued without additional cost.

Multiple choice

Which is an incorrect statement?

  1. The issue of Bonus shares is subject to sanction from the SEBI

  2. The prior approval of capitalisation of reserves upto Rs.1 crore is totally exempted

  3. Bonus issues beyond the ratio of 1 : 1 is not permitted

  4. Partly paid equity shares are issued as bonus shares
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The question asks for the INCORRECT statement. Partly paid shares cannot be issued as bonus shares because bonus shares are fully paid-up shares issued free of cost to existing shareholders from accumulated reserves. Companies must issue only fully paid-up bonus shares.

Multiple choice

The dividend irrelevance theorem to share valuation was propounded by

  1. James E. Walter

  2. Myron Gordon

  3. Modigliani and Miller

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

Modigliani – Miller theory is a major proponent of ‘Dividend Irrelevance’ notion. According to this concept, investors do not pay any importance to the dividend history of a company and thus, dividends are irrelevant in calculating the valuation of a company.

Multiple choice

If Raju invests Rs. 24,000, and incurs dividend at 10% for the face value of Rs. 60 each in shares, quoted at Rs. 48 for one share, which of the following could be his income from shares?

  1. Rs. 4000

  2. Rs. 3000

  3. Rs. 5000

  4. Rs. 6000

  5. Rs. 1000
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Number of shares = Sum invested/Market value of the share = Rs. 24,000/Rs. 48 = 500 Income = Face value of the share x Number of shares x Rate of dividend = Rs. 60 x 500 x (10/100) = Rs. 3000

Multiple choice

Mr Ravi had invested Rs. 52,000 in 18% Rs. 200 shares at a premium of 30%. Which of the following is the percentage return on Mr Ravi's investment?

  1. 11.85%

  2. 12.85%

  3. 3.85%

  4. 13.85%

  5. 14.85%
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Percentage Return = (Total income/Total investment) x 100 Face value(F.V) of the share = Rs. 200 Market value of the share = 130% of Rs. 200 = Rs. 260 Total number of shares = Invested sum/Market value of the share = Rs. 52,000/260 = 200 shares Total Income = F.V of the share X Number of shares X rate of dividend = 200 x 200 x 18/100 = Rs. 7,200 Percentage return = (7,200/52,000) x 100 = 13.85%

Multiple choice

Mr Ravi had invested Rs. 52,000 in 18% Rs. 200 shares at a premium of 30%. What is the total income of Mr. Ravi from the shares?

  1. Rs. 7,800

  2. Rs. 7,200

  3. Rs. 2,200

  4. Rs. 6,200

  5. Rs. 3,200
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Face value(F.V) of the share = Rs. 200 Market value of the share = 130% of Rs. 200 = Rs. 260 Total number of shares = Invested sum/Market value of the share = Rs. 52,000/260 = 200 shares Total Income = F.V of the share x Number of shares x Rate of dividend = 200 x 200 x 18/100 = Rs. 7,200

Multiple choice

Which of the following is not a feature of equity share?

  1. Residual claim on assets

  2. Voting rights

  3. Redemption of equity shares during the life time of the company

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

It is not a feature of equity shares. The equity shares cannot be redeemed or paid back during the life time of the company because it has no maturity period. It is debentures and redeemable preference shares, which have fixed maturity period.