Tag: equity and preference shares

Questions Related to equity and preference shares

The ending balance of owner's equity is Rs.21,000. During the year, the owner contributed Rs.6,000 and withdrew Rs.4000. If the firm had Rs.8,000 net income for the year what was the owner's equity at the beginning?

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

  1. Rs.23,000

  2. Rs.21,000

  3. Rs.19,000

  4. Rs.11,000

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Correct Option: D
Explanation:

Owner's equity at the beginning= ending balance of owner's equity - net income + withdrawal amount - contributed amount = 21000-800+4000-6000 = 11000.

If the stock velocity is 6, cost of goods sold is Rs.54,000 and closing stock is Rs.10,000 the opening stock is __________.

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

  1. Rs. 8,000

  2. Rs. 9,000

  3. Rs. 10,000

  4. Rs. 12,000

  5. Rs. 18,000

Show answer
Correct Option: A
Explanation:

Let the opening stock is x.
Stock velocity = cost of goods sold / average inventory
6 = 54,000/(10000+x)/2
hence x = Rs.8,000.

X limited issued 10,000 equity shares of Rs.10 each at premium Rs.2 each. The company has incurred issue expenses of Rs.5,000. The equity shareholders expect dividend of $18\%$ then cost of capital is ____________.

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

  1. $18\%$

  2. $15.65\%$

  3. $16.65\%$

  4. $18.65\%$

Show answer
Correct Option: B
Explanation:

K$ _e$ = $\frac{D _1}{NP}$
Where NP i.(E) Net Proceed of shares = $\frac{1000 X12 - 5000}{10000}$
Dividend of a share (D$ _I$) = Rs. 1.8.

Which of the following feature(s) of preference shares are similar to those of equity shares?

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

  1. Redeemability

  2. No obligation to pay dividend

  3. Voting rights

  4. Change over assets

  5. Both (B) and (C) above

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Correct Option: B
Explanation:

Like in the case of equity shareholders there is no obligatory payment to the preference shareholders and the preference dividend is not tax deductable.

The means of obtaining financial resources that involves the sale of part of the ownership of the business is called ______.

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

  1. bankruptcy

  2. equity financing

  3. commercial loans

  4. debt financing

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Correct Option: B
Explanation:

Equity financing is the method of raising capital by selling company stock to investors. In return for the investment, the shareholders receive ownership interests in the company.

The shares of a company are________. 

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

  1. transferable

  2. non-transferable

  3. fixed

  4. none of the above

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Correct Option: A
Explanation:

The shares of a company are transferable as the shares can be trade between buyers and sellers of the shares of the stock of the company at a mutually agreed price.

Equity share holders may receive ___________ on their investment.

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

  1. Interest

  2. Dividend

  3. Bonus

  4. (B) and (C)

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Correct Option: D
Explanation:

Equity share holders may receive  dividend and bonus on their investment. Dividend refers to the sum of money which are paid out of the total profits and bonus refers to the one time payment.

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

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

  1. shareholder

  2. depository participant

  3. bank

  4. none of the above

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Correct Option: B
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.

Rematerialization of shares means __________.

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

  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

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Correct Option: C
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.

Shares in the company are _________________.

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

  1. restricted

  2. freely transferable

  3. partially transferable

  4. none of the above

Show answer
Correct Option: B
Explanation:

Shares in a public company are freely transferable. However, the shares issued by a private company are more restrictive towards transferability of shares.