Tag: commercial studies

Questions Related to commercial studies

If the rights of a particular class of share holders is to be changed then the company should call __________.

commercial studies sources of business finance - 2 equity shares share and stock equity and preference shares

  1. shareholders meeting

  2. directors

  3. class meetings

  4. preference shareholder meeting

Show answer
Correct Option: C
Explanation:

A company is an association of several persons. Decisions are made according to the view of the majority. Class meetings are meetings which are held by holders of a particular class of shares, e.g., preference shareholders. Such meetings are normally called when it is proposed to vary the rights of that particular class of shares.

For a guarantee company the liability of shareholder is ____________.

commercial studies sources of business finance - 2 equity shares share and stock equity and preference shares

  1. amount of guarantee specified in memorandum

  2. amount of guarantee given on paper

  3. both A & B

  4. unlimited

Show answer
Correct Option: A
Explanation:

A guarantee company is a type of corporation designed to protect members from liability. Guarantee companies often form when non-profit organizations wish to attain corporate status.  For a guarantee company the liability of shareholder is amount of guarantee specified in the memorandum.

Equity share holders may receive ____ on their investment.

commercial studies sources of business finance - 2 equity shares share and stock equity and preference shares

  1. interest

  2. dividend

  3. bonus

  4. (B) & (C)

Show answer
Correct Option: D
Explanation:

Equity share holders are the owners of the company, equity shares are also known as owner's share capital or owner's fund. Equity share holders may receive dividend and/or bonus. The profits that the company earns after the repayment of creditors and other liabilities is received by the equity share holders.

The Rights Shares are allotted only to the existing ________ of the company.

commercial studies sources of business finance - 2 equity shares share and stock equity and preference shares

  1. equity shareholders

  2. debenture shareholders

  3. deposit holders

  4. (B) & (C)

Show answer
Correct Option: A
Explanation:

The Rights Shares are allotted only to the existing equity shareholders. of the company. The shareholders who existed from earlier have the right to subscribe there shares.

Which of the following section of the Companies Act, 2013 prohibits to issue of shares at discount?

commercial studies sources of business finance - 2 equity shares share and stock equity and preference shares

  1. Section 53

  2. Section 54

  3. Section 55

  4. Section 56

Show answer
Correct Option: A
Explanation:

 Section 53 of the Companies Act, 2013 prohibits to issue of shares at discount. It means this section prevents the process of issuing shares at a less price than the actual price.

__________ have the right to vote on any resolution placed before the company or general meeting.

commercial studies sources of business finance - 2 equity shares share and stock equity and preference shares

  1. Preference shareholder

  2. Equity shareholders

  3. Debenture holder

  4. All of the above

Show answer
Correct Option: B
Explanation:
Equity shares is the most important source of raising long term capital by a company. Equity shares represent the ownership of a company and thus the capital raised by issue of such shares is known as ownership capital or owner’s funds. Hence, being the owners of the company, equity shareholders have the right to vote on any resolution placed before the company or general meeting.

Equity shareholder is _________.

commercial studies sources of business finance - 2 equity shares share and stock equity and preference shares

  1. entitled to dividend at a fixed rate

  2. not entitled to dividend at a fixed rate

  3. entitled to dividend of preference shareholder

  4. all of the above

Show answer
Correct Option: B
Explanation:
Equity shares represent the ownership of a company and thus the capital raised by issue of such shares is known as ownership capital or owner's funds. They are referred to as residual owners since they receive what is left after all other claims on the company income and assets have been settled. Therefore, equity shareholders are not entitled to dividend at a fixed rate.

Which of the following type of security can be issued at discount as per Companies Act, 2013?
(1) Equity Shares
(2) Sweat Equity Shares
(3) Preference Shares
(4) Debentures
(5) Bonds
Select the correct answer from the option given below :-

commercial studies sources of business finance - 2 equity shares share and stock equity and preference shares

  1. (1) & (3) only

  2. (1) & (3) & (4) only

  3. (2), (4) & (5) only

  4. (3), (4) & (5) only

Show answer
Correct Option: C
Explanation:
1. Equity shares
Meaning:
Equity shares are the main source of finance of a firm. It is issued to the general public. Equity share¬holders do not enjoy any preferential rights with regard to repayment of capital and dividend. They are entitled to residual income of the company, but they enjoy the right to control the affairs of the business and all the shareholders collectively are the owners of the company.
Features of Equity Shares.

The main features of equity shares are:
1. They are permanent in nature.

2. Equity shareholders are the actual owners of the company and they bear the highest risk.

3. Equity shares are transferable, i.e. ownership of equity shares can be transferred with or without consideration to other person.

4. Dividend payable to equity shareholders is an appropriation of profit.

5. Equity shareholders do not get fixed rate of dividend.

6. Equity shareholders have the right to control the affairs of the company.

7. The liability of equity shareholders is limited to the extent of their investment.

Advantages of Equity Shares:

Equity shares are amongst the most important sources of capital and have certain advantages which are mentioned below:

i. Advantages from the Shareholders’ Point of View
(a) Equity shares are very liquid and can be easily sold in the capital market.
(b) In case of high profit, they get dividend at higher rate.
(c) Equity shareholders have the right to control the management of the company.
(d) The equity shareholders get benefit in two ways, yearly dividend and appreciation in the value of their investment.

ii. Advantages from the Company’s Point of View:
(a) They are a permanent source of capital and as such; do not involve any repayment liability.
(b) They do not have any obligation regarding payment of dividend.
(c) Larger equity capital base increases the creditworthiness of the company among the creditors and investors.

Disadvantages of Equity Shares:
Despite their many advantages, equity shares suffer from certain limitations. These are:
i. Disadvantages from the Shareholders’ Point of View:
(a) Equity shareholders get dividend only if there remains any profit after paying debenture interest, tax and preference dividend. Thus, getting dividend on equity shares is uncertain every year.
(b) Equity shareholders are scattered and unorganized, and hence they are unable to exercise any effective control over the affairs of the company.
(c) Equity shareholders bear the highest degree of risk of the company.
(d) Market price of equity shares fluctuate very widely which, in most occasions, erode the value of investment.
(e) Issue of fresh shares reduces the earnings of existing shareholders.

ii. Disadvantage from the Company’s Point of View:
(a) Cost of equity is the highest among all the sources of finance.
(b) Payment of dividend on equity shares is not tax deductible expenditure.
(c) As compared to other sources of finance, issue of equity shares involves higher floatation expenses of brokerage, underwriting commission, etc.

2. Debentures
A debenture is one of the most typical forms of long term loans that a company can take.

It is normally a loan that should be repaid on a specific date, but some debentures are irredeemable securities (sometimes referred to as perpetual debentures).

The majority of debentures come with a fixed interest rate. This interest must be paid before dividends are paid to shareholders.

Debenture holders
Debenture holders (investors) are not allowed to vote in the company's general shareholders meetings, but they may have separate meetings or votes, for instance regarding changes to the rights associated with the debentures.

The interest that is paid to debenture holders is calculated as a charge against profit in the company's financial statements.

Types of debentures
Debentures come in two types:

Convertible debentures: Convertible bonds or bonds that can be converted into equity shares of the issuing company after a predetermined period of time. To investors, convertible bonds are more attractive because the bonds can be converted, and to companies they have the advantage that they normally have lower interest rates than non-convertible corporate bonds.

Non-convertible debentures: Standard debentures that can't be converted into equity shares of the liable company. Since they can't be converted, they usually have higher interest rates than convertible debentures.

Benefits
Debentures are mainly beneficial to companies by having a lower interest rate than other types of loans, e.g. overdrafts. Further, they normally only need to be repaid by a very remote date.
The main benefits of debentures to investors is that they can usually be sold in stock exchanges quite easily and they come with less risk than e.g. equities.



3. Bonds
In finance, a bond is an instrument of indebtedness of the bond issuer to the holders. The most common types of bonds include municipal bonds and corporate bonds.
The bond is a debt security, under which the issuer owes the holders a debt and (depending on the terms of the bond) is obliged to pay them interest (the coupon) or to repay the principal at a later date, termed the maturity date. Interest is usually payable at fixed intervals (semiannual, annual, sometimes monthly). Very often the bond is negotiable, that is, the ownership of the instrument can be transferred in the secondary market. This means that once the transfer agents at the bank medallion stamp the bond, it is highly liquid on the secondary market. 
Thus a bond is a form of loan or IOU: the holder of the bond is the lender (creditor), the issuer of the bond is the borrower (debtor), and the coupon is the interest. Bonds provide the borrower with external funds to finance long-term investment, or, in the case of government bonds, to finance current expenditure.  

When shares are not payable in a lump sum, first instalment is called ___________.

commercial studies sources of business finance - 2 equity shares share and stock equity and preference shares

  1. Application Money

  2. Allotment Money

  3. First Call Money

  4. Final Call Money

Show answer
Correct Option: A
Explanation:
Share Application Money: A company receives certain amount from shareholders' on application (known as share application money). Share Application Money Pending Allotment means amount received on application on which allotment is not yet made (pending allotment). Share Application Money Pending Allotment to the extent not refundable is included in Shareholders' Fund (as it is the amount received by the company against which allotment will be made).

Shares forfeited account is to be shown in the balance sheet by way of ____________ to the paid up share capital on the liabilities side until the concerned shares are re-issued.

commercial studies sources of business finance - 2 equity shares share and stock equity and preference shares

  1. Addition

  2. Deduction

  3. Both (A) & (B)

  4. Neither (A) nor (B)

Show answer
Correct Option: A
Explanation:
Share forfeited account:-
If a shareholder fails to pay allotment money or a call or a part thereof by the last date fixed for payment, the Board of Directors, if Articles of Association of the company empower it to do so, proceed to forfeit the shares on which allotment money or call has become in arrear.The Articles of Association lay down the procedure. A notice has to be served on the defaulter requiring him to pay the unpaid amount together with interest accrued by a certain date.

The notice also must state that in the event of non-payment on or before the date so named, the shares in respect of which the notice has been served will be liable to be forfeited. When shares are forfeited, the shareholder’s name is removed from the register of members and the amount already paid by him on shares is forfeited to the capital. It is a capital gain and is credited to Forfeited Shares Account. A forfeited share may be reissued even at a loss. But the loss on reissue cannot exceed the gain on forfeiture of the share reissued.