Tag: sources of business finance - 2

Questions Related to sources of business finance - 2

If forfeited shares are re-issued at a premium, the amount of such premium should be creted to ______________.

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

  1. Capital Reserve Account

  2. Securities Premium Account

  3. Revenue Reserve Account

  4. Profit & Loss Account

Show answer
Correct Option: B
Explanation:
Issue of Shares at Premium:

Shares are said to be issued at premium when they are issued at a price higher than the face value.
 
The excess of issue price over face value is referred to as ‘share premium’ or ‘security premium’, which is credited to a separate account called ‘securities premium account’.
 
For example, A Ltd. issues 10,000 shares of face value of ₹ 10 each at ₹ 12 per share. Here ₹ 2 (₹ 12 - ₹ 10) is treated as ‘security premium’.
 
The amount collected as share premium is disclosed under ‘Reserves and Surplus’ on the liabilities side of the balance sheet.
 
Section 78 of The Companies Act has laid down the following purposes for which the securities premium can be utilized:
To issue fully paid bonus shares to its members
To write off preliminary expenses of the company
To write off expenses in relation to the issue of shares or debentures of the company
To provide for premium payable on redemption of preference shares and debentures of the company

the abbreviation 'ESOP' stands for ___________.

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

  1. Employee Stock Option Plan

  2. Employee Share Option Plan

  3. Employee Share Option Programme

  4. Employee Stock Option Programme

Show answer
Correct Option: A
Explanation:

Definition: An employee stock ownership plan (ESOP) is a type of employee benefit plan which is intended to encourage employees to acquire stocks or ownership in the company.

Description: Under these plans, the employer gives certain stocks of the company to the employee for negligible or less costs which remain in the ESOP trust fund, until the options vests and the employee exercises them or the employee leaves/retires from the company or institution.

These plans are aimed at improving the performance of the company and increasing the value of the shares by involving stock holders, who are also the employees, in the working of the company. The ESOPs help in minimizing problems related to incentives.

Fund means __________.

organisation of commerce and management specialised financial institutions institutional sources long term sources of finance sources of business finance - 2

  1. Capital

  2. Bond

  3. Assets

  4. Working Capital

Show answer
Correct Option: D
Explanation:

Receivable turnover ratio = Net credits sale/ Average accounts receivable = 10
and average collection period  =360
receivables turnover ratio = 36
Hence a receivable turnover ratio of 10 implies that the credit sales are 10 times the average receivables or in other words receivables are generated 10 times during the year.

The NABARD provides refinancing facilities to _________.

organisation of commerce and management specialised financial institutions institutional sources long term sources of finance sources of business finance - 2

  1. small industries

  2. village industries

  3. cottage industries

  4. all of the above

Show answer
Correct Option: D
Explanation:

NABARD is entrusted by government for development of rural areas in India. Small industries, village industries and cottage industries are the most prevailing industries in rural parts of India, with limited amount of finances. Hence, The NABARD provides refinancing facilities to such industries.

The depository receipts issued by a company in the USA are known as____________.

organisation of commerce and management specialised financial institutions institutional sources long term sources of finance sources of business finance - 2

  1. Global Depository Receipts

  2. American Depository Receipts

  3. Foreign Currency Convertible Bonds

  4. All of the above

Show answer
Correct Option: B
Explanation:
The depository receipts issued by a company in the USA are known as American Depository Receipts. ADRs are bought and sold in American markets like regular stocks. It is similar to Global Depository Reciepts. 

What is the Chief feature of the group banking system?

organisation of commerce and management specialised financial institutions institutional sources long term sources of finance sources of business finance - 2

  1. Centralised management

  2. Decentralised management

  3. Wide network of branches

  4. All the above

Show answer
Correct Option: A
Explanation:

Each member bank of the group banking system retains its separate entity and maintains its board of directors but however, the group banking system enjoy the benefits of centralized administration. 

Merchant Bank also known as ______.

organisation of commerce and management specialised financial institutions institutional sources long term sources of finance sources of business finance - 2

  1. NABARD

  2. investment bank

  3. commercial bank

  4. development bank

Show answer
Correct Option: B
Explanation:

Merchant bank and investment banks both provide advice to companies regarding potential mergers and also provide investment research to those companies.

Industrial banks are also known as___________.

organisation of commerce and management specialised financial institutions institutional sources long term sources of finance sources of business finance - 2

  1. NABARD

  2. RRB's

  3. Morris bank

  4. EXIM bank

Show answer
Correct Option: C
Explanation:

Just as investment banks, industrial banks sell certificates that are labelled as investment share. This helps public to invest in such bonds and certificates through industrial banks. Hence, Industrial banks are also known as investment banks.

Mixed banking system is found in _________.

organisation of commerce and management specialised financial institutions institutional sources long term sources of finance sources of business finance - 2

  1. India

  2. U.S.A.

  3. Germany

  4. Soviet Russia

Show answer
Correct Option: C
Explanation:

German banking system is the best example of mixed banking system. German banks perform large variety of functions which includes functions of a commercial bank as well as investment bank. These banks can also be called as universal banks.

Unit Banking system was originated in __________.

organisation of commerce and management specialised financial institutions institutional sources long term sources of finance sources of business finance - 2

  1. USA

  2. England

  3. India

  4. Pakistan

Show answer
Correct Option: A
Explanation:

Unit Banking System refers to a single and usually small banks providing financial services to local people. Such banks do not have any connecting branches. The concept of Unit Banking System was originated in USA.