Tag: sources of business finance - 2

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Questions Related to sources of business finance - 2

Multiple choice organisation of commerce and management sources of business finance - 2 equity shares share and stock equity and preference shares

In dematerialization of shares ______ passes the physical shares to company for making it into electronic form.

  1. shareholder

  2. depository participant

  3. bank

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

In dematerialization of shares depository participant  passes the physical shares to company for making it into electronic form. Depository participant refers to the agent between depository and investors.

Multiple choice organisation of commerce and management sources of business finance - 2 equity shares share and stock equity and preference shares

Rematerialization of shares means __________.

  1. getting the share certificates in bank account

  2. converting them into money by selling the shares

  3. getting the share certificate in the physical form

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

Rematerialization of shares means getting the share certificate in physical form. It also refers to the process of converting the shares in physical form which are held into electronic form.

Multiple choice organisation of commerce and management sources of business finance - 2 equity shares share and stock equity and preference shares

A company funded through shares ___________.

  1. has unlimited liability

  2. exists only in contemplation of law

  3. has a perpetual succession

  4. comes to an end on the death of all the members
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

A company funded through shares has a perpetual succession. Perpetual succession refers to the law of continuing the organization despite the death, insanity, exit of one member, etc.

Multiple choice organisation of commerce and management sources of business finance - 2 equity shares share and stock equity and preference shares

________ is the process by which electronic shares of an investor are converted to physical certificates.

  1. Rematerialization

  2. Dematerialization

  3. Materialization

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

Rematerialization connotes the act of converting the shares held in electronic mode, in the investor's account, into shares in physical form. It is a similar process like De-materialization of shares in which the physical shares are converted into electronic mode.

Multiple choice organisation of commerce and management sources of business finance - 2 equity shares share and stock equity and preference shares

______ is the process by which physical certificates an investor are converted to an equivalent number of securities in electronic format and credited in the investor's account with a Depository held through a Depository Participant(DP).

  1. Rematerialization

  2. Dematerialization

  3. Materialization

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

 Dematerialization is the process by which physical certificates an investor are converted to an equivalent number of securities in electronic format and credited in the investor's account with a Depository held through a Depository Participant(DP). In simple words, dematerialization refers to the conversion of physical form of share to electronic form.

Multiple choice organisation of commerce and management sources of business finance - 2 equity shares share and stock equity and preference shares

The issuer company cannot make allotment of shares unless ______________.

  1. There is over subscription

  2. The minimum subscription has been subscribed

  3. Promoter has subscribed

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

Minimum Subscription: It is said to be the minimum amount which as per the directors must be raised by issuing shares to overcome various expenses like working capital required, preliminary expenses, repayment of money borrowed or any other payment etc. Company has to make sure that it must receive share applications for minimum subscription as mentioned in the prospectus, before it applies for the certificate pf commencement of business. Company has to refund back all the money received from the applicants and cannot make any allotment, if the amount of capital subscribed by the public is less than the minimum subscription or if the company could not get minimum subscription within 120 days of the issue of prospectus.

Multiple choice organisation of commerce and management sources of business finance - 2 equity shares share and stock equity and preference shares

Public companies issued shares to public through document called ________________.

  1. Letter of offers & acceptance

  2. Offer for sale & acceptance

  3. Prospectus

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

A Prospectus is a formal legal document that is required by and filed with the Securities and Exchange Commission (SEC) that provides details about an investment offering for sale to the public. 


The preliminary prospectus is the first offering document provided by a security issuer and includes most of the details of the business and transaction in question; the ,final prospectus containing finalized background information including such details as the exact number of shares/certificates issued and the precise ,offering price is printed after the deal has been made effective. In the case of mutual funds, a fund prospectus contains details on its objectives, investment strategies, risks, performance, distribution policy, fees and expenses, and fund management. 

A prospectus includes the name of the company issuing the stock or the mutual fund manager, the amount and type of securities being sold and, for stock offerings, the number of available shares. 

The prospectus also details whether an offering is public or private, how much the underwriters are earning per sale and names of the company’s principals. A brief summary of the company’s financial information, whether the SEC approved the prospectus and other pertinent information is included as well.

Multiple choice organisation of commerce and management sources of business finance - 2 equity shares share and stock equity and preference shares

The premium on issue of shares must be treated as __________.

  1. Revenue Receipt

  2. Deferred Revenue Receipt

  3. Capital Receipt

  4. Capital Loss
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation
Capital Receipt:-

These have a nature of non-recurrence, besides that, they are situated in the balance sheet in the liabilities portion of them. The capital receipt is always in the interchange for the income. The capital receipt is a kind of cash-flow in the business that does not occur over and over again and this eventually, leads to the creation of liabilities in the future and also, the decrement of assets takes place in the future.

All of the capital receipts are free from taxation unless there is a provision to tax it. Various types of Gifts and loans are the types of the capital receipts that do not attract tax and are tax-free. So, in addition to non-recurring, Capital receipts are those non-routine receipts which either becomes a load and responsibility or cause a vivid depletion in the assets of the government or any organization and business.

The following sources are the generators of the capital receipt:
• Additional capital and mentioned assets introduced by the owner or the possessor
• Debentures and the other  issues of debt instruments
• Loans borrowed from a bank or from a financial institution.
• Various insurance Claims.
• Issue of Shares
So, basically, capital receipts are those that are the derivation of the not so normal operations of a business. Besides that, the effect of capital receipt is depicted in the balance sheet. These receipts are not at all a part of normal operations of government business. For example, a sale of fixed assets, etc.
Multiple choice organisation of commerce and management sources of business finance - 2 equity shares share and stock equity and preference shares

The minimum subscription is the ______of the issued amount.

  1. 50%

  2. 80%

  3. 75%

  4. 90%
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation
 Minimum subscription refers to the smallest amount required by the company for its preparatory functions. It has been provided by the Companies Act, that the firm must obtain applications for a certain minimum number of shares before progressing ahead with the allotment of shares in order to deter companies from commencing business with scarce resources. This is called the ‘minimum subscription’. The limit of smallest subscription is 90% of the size of the subject.
The smallest number of protection which may be employed for in any new issue. The Companies Act of 1956 created a legal pattern for this, stating that an organization can only offer a certain quantity of shares to the public that the company can really pay for if the shares are drawn in by the buyer.
For e.g. if the company is issuing 100 shares to the public, then the 90% of the 100 shares should be get subscribed that is 90 shares should be subscribed to went ahead with the allotment.