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

Which of the following dividends is also known as issue of bonus shares?

  1. Cash dividend

  2. Property dividend

  3. Stock dividend

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

It is the stock dividend, which is also known as issue of bonus shares. In the stock dividend, the company issues additional or bonus shares in proportion to their existing equity shares in the company. Hence, stock dividend is also known as issue of bonus shares.

Multiple choice

What is the effect of issue of bonus shares?

  1. The profits are converted into share capital.

  2. The debt is converted into equity.

  3. The company's shares are redeemed.

  4. The equity is converted into debt.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

By the issue of bonus shares, the profits of the company are converted into share capital. The bonus shares are allotted by capitalizing the reserves and surplus. Hence, issue of bonus shares results in the conversion of the company's profits into share capital.

Multiple choice

Madhav, a shareholder of 1000 shares in Kumar Ltd. paid the amount due on first call and final call along with allotment money. The amount payable per share is Rs.10, which has to be paid equally on application, allotment and calls (payable on 1 January, 1 April, 1 August and 31 December). Calculate the interest payable to him on calls in advance.

  1. Rs. 100

  2. Rs. 162.50

  3. Rs. 185.42

  4. Rs. 225

Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Advance of first call = Rs. 2500, interest rate @ 6% p.a, time duration 1 April-1 August = 4 months Interest = Rs. 50 Advance of second call = Rs. 2500, interest rate @ 6% p.a, time duration 1 April-31 December = 9 months Interest = Rs. 112.50 Total Interest Rs. 162.50 Option (A) is incorrect. You may take second call period 4 months, i.e. September- December. Option (C) is incorrect. You may take interest rate @5% applicable on calls in arrears. Option (D) is incorrect. You may take combined period of 9 months for both advances.

Multiple choice

Zenith Ltd. purchased furniture from Divesh for Rs. 2,20,000. 25% of the amount due was paid by cash and balance by issuing equity shares of Rs. 10 each at 20% premium. Calculate number of shares issued to Divesh.

  1. 13750

  2. 16500

  3. 22000

  4. 18333
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Amount payable through shares = Rs.(2,20,000-55,000) = Rs. 1,65,000 Number of shares = 1,65,000/12 = 13750 shares Option (B) is incorrect. You may take 1,65,000/10. Option (C) is incorrect. You may take 2,20,000/10. Option (D) is incorrect. You may take 2,20,000/12.

Multiple choice

Which of the following is/are correct?

  1. The entire surplus would be distributed to policyholders.

  2. The entire surplus would be distributed to shareholders.

  3. A portion of the surplus would be left for distribution to shareholders.

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

Earned surplus is the sum of a company's profits, after dividend payments, since the company's inception. A portion of the surplus would be left for distribution to shareholders.

Multiple choice

U/s 35-A of the Banking Regulation Act, a banking company, before allowing transfer of shares, is required to obtain RBIs acknowledgment if such transfer results in holding more than _____ of the paid-up capital of the bank.

  1. 2%

  2. 5%

  3. 7.5%

  4. 10%
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Prior approval of RBI is required if acquisition together with voting rights exceeds 5% of the paid-up share capital. Acknowledgement by RBI: Banks, when receiving more than 5% of their paid-up capital for transfer to one party must refer to RBI.

Multiple choice

In ______, there is facility that if the dividend payable is not paid, it will accumulate. In addition, the share will be exchanged with an equity share.

  1. redeemable preference share

  2. participating preference share

  3. cumulative convertible preference share

  4. irredeemable preference share

Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Cumulative convertible preference shares are a type of preference shares where the dividend payable on the same accumulates, if not paid. After a specified date, these shares will be converted into equity capital of the company.

Multiple choice

Which of the following statements is/are correct about the disinvestment policy in India?

  1. While pursuing disinvestment, the Government should have management control of the Public Sector Undertakings and holding at least 51% equity.
  2. The Department of Expenditure identifies CPSEs and submit proposal to Government in cases requiring Offer for Sale of Government equity.
  3. The listed profitable Central Public Sector Enterprises not meeting mandatory shareholding of 12% are divested by the CPSEs through issue of fresh shares.

  1. Only 1

  2. 2 and 3

  3. Only 3

  4. 1, 2 and 3
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Statement 1 is correct. The salient features of the disinvestment policy in India are: (i) Citizens have every right to own part of the shares of Public Sector Undertakings. (ii) Public Sector Undertakings are the wealth of the Nation and this wealth should rest in the hands of the people. (iii) While pursuing disinvestment, Government has to retain majority shareholding, i.e. at least 51% and management control of the Public Sector Undertakings. Statement 2 is wrong because the department of disinvestment is to identify CPSEs in consultation with respective administrative Ministries and submit proposal to Government in cases requiring Offer for Sale of Government equity. Statement 3 is wrong. The already listed profitable CPSEs (not meeting mandatory shareholding of 10%) are to be made compliant by 'Offer for Sale' by Government or by the CPSEs through issue of fresh shares or a combination of both, though it has to reach 25% of public shareholding.

Multiple choice

Which of the following statements are not correct in connection with shareholding in an Indian bank under provision of BR Act?

  1. There is no ceiling on a person’s holding of shares.

  2. No shareholder can exercise voting rights in excess of 10% of total voting rights.

  3. The provision of 10% ceiling restricts the transfer and registration of such transfer.

  4. The provisions of Companies Act also govern transfer of shares of banking companies.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Correct Answer: The provision of 10% ceiling restricts the transfer and registration of such transfer.

Multiple choice

Banks are required to transfer a part of their profits to a Reserve Fund

(a) u/s 17-1 of B R Act (b) and the amount is to be 20% of such profits (c) after payment of dividend (d) and commercial banks operating in India should transfer not less than 25 per cent of the ‘net profit’

  1. (a) to (d) all

  2. (a), (b) and (c) only

  3. (a), (b) and (d) only

  4. (b), (c) and (d) only
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

In terms of section 17 (1) and 11 (1)(b) (ii) of the Banking Regulation Act, 1949, banks are required to transfer, out of the balance of profit as disclosed in the profit and loss account, a sum equivalent to not less than 20 per cent of such profit to Reserve Fund. This provision is a minimum requirement.  Considering the imperative need for augmenting the reserves, it was advised vide circular DBOD.No.BP.BC.24/21.04.018/ 2000-2001 dated September 23, 2000 that all scheduled commercial banks operating in India (including foreign banks) should transfer not less than 25 per cent of the ‘net profit’ (before appropriations) to the Reserve Fund with effect from the year ending 31 March, 2001. 

Multiple choice

A private company should have a minimum paid-up capital or Rupees _________.

  1. Five Crore

  2. Five Lakh

  3. One Crore

  4. One Lakh
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

According to the Companies Act, 2013, every company has to give a declaration to the Registrar of Companies (RoC), stating its paid-up capital is not less than Rs. 5 lakh in the case of public companies (the listed ones, as well as those that have raised money from the market through debt); and not less than Rs. 1 lakh in the case of private companies. This declaration is necessary for obtaining a commencement certificate for business.