Tag: non-institutional sources - long-term

Questions Related to non-institutional sources - long-term

Which one of the statements applies only to Preference Shareholders?

organisation of commerce and management sources of business finance - 2 equity and preference shares equity shares and preference shares non-institutional sources - long-term

  1. Shareholders risk the loss of investment.

  2. Shareholders bear the risk of no dividends in the year of losses.

  3. Shareholders usually have the right to vote.

  4. Dividends are usually a fixed amount in every financial year.

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Correct Option: D
Explanation:

The preference shares are the ones which preferential rights like prior payment of dividend and return of capital.The dividend also remains the same for every financial year and the company has a fixed liability to pay the interest and the amount of profits cannot define the payment of interest on preference shares.

Which of the following is not a merit of retained earnings?

organisation of commerce and management sources of business finance - 2 equity and preference shares equity shares and preference shares non-institutional sources - long-term

  1. As the funds are generated internally, there is a greater degree of operational freedom and flexibility.

  2. Retained earnings is a permanent source of funds available to an organisation.

  3. It is an uncertain source of funds as the profits of business are fluctuating.

  4. It enhances the capacity of the business to absorb unexpected losses.

Show answer
Correct Option: C
Explanation:

A part of the net profits that are usually kept for use in the future is termed as retained earnings. Retained earnings are uncertain sources of funds as the profits of a business are fluctuating and can't be always determined. This is a demerit of retained earnings.

Portion of the net earnings retained in the business for future use is known as _______.

organisation of commerce and management sources of business finance - 2 equity and preference shares equity shares and preference shares non-institutional sources - long-term

  1. Net profit

  2. Retained earnings

  3. Gross profit

  4. None of the above

Show answer
Correct Option: B
Explanation:

The a company or a business revolves around earning profits, for the same, it has to perform financial planning to keep the business running. Some parts of the profits that are earned are usually kept for use in the future. This foresight of retaining a portion of the net earnings is known as retained earnings.

Retained earnings is a ___________ source of funds available to an organisation.

organisation of commerce and management sources of business finance - 2 equity and preference shares equity shares and preference shares non-institutional sources - long-term

  1. Temporary

  2. Permanent

  3. Higher

  4. Both a and b

Show answer
Correct Option: B
Explanation:

A part of the net profit that is usually kept for use in the future is known as retained earnings. Retained earnings are a permanent source of funds available to the organisation as it is the amount that has been retained from the net earnings by the organisation and can be flexibly used.

Retained earnings is a source of ___________.

organisation of commerce and management sources of business finance - 2 equity and preference shares equity shares and preference shares non-institutional sources - long-term

  1. Internal financing

  2. Ploughing back of profits

  3. Self financing

  4. All of the above

Show answer
Correct Option: D
Explanation:

Retained earnings are the funds which have been kept by the company for their future expenses out of the net earnings gained by the company over the course of business. These retained earnings can be a source of funds for internal financing, as a help in the low business turnover or self financing for the smooth functioning of the business or company.

The money raised by issue of preference shares is called as _________ share capital.

organisation of commerce and management sources of business finance - 2 equity and preference shares equity shares and preference shares non-institutional sources - long-term

  1. Equity

  2. Preference

  3. Right

  4. Bonus

Show answer
Correct Option: B
Explanation:

The capital raised by issue of preference shares is called as preference share capital.  The preference share holders enjoy a preferential position over equity shareholder in receiving fixed dividend out of the net profits of the company and receiving capital at the time of liquidation.

The rate of dividend on preference shares is generally _________ than the rate of interest on debentures.

organisation of commerce and management sources of business finance - 2 equity and preference shares equity shares and preference shares non-institutional sources - long-term

  1. lower

  2. higher

  3. equal

  4. medium

Show answer
Correct Option: B
Explanation:
The capital raised by issue of preference shares is called preference share capital.Debentures are an important instrument for raising long term debt capital. A company can raise funds through issue of debentures, which bear a fixed rate of interest. The rate of dividend on preference shares is generally higher than the rate of interest on debentures.

Preference shares resemble debentures as they bear ________ rate of return.

organisation of commerce and management sources of business finance - 2 equity and preference shares equity shares and preference shares non-institutional sources - long-term

  1. fixed

  2. fluctuating

  3. higher

  4. lower

Show answer
Correct Option: A
Explanation:

The capital raised by issue of preference shares is called preference share capital.Debentures are an important instrument for raising long term debt capital. Both resembles each other as they bear fixed rate of return on the capital that has been raised.

Companys owners are shareholders. So the company property belongs to the share holders. Do you agree with this statement?

organisation of commerce and management sources of business finance - 2 equity and preference shares equity shares and preference shares non-institutional sources - long-term

  1. Yes

  2. No

  3. Sometimes yes

  4. Sometimes no

Show answer
Correct Option: B
Explanation:

Company owners are not ordinary share holders but equity share holders, which is also known as owner's share capital. So the company property belongs to the equity share holders.

For a company to be subsidiary the other company should hold _____% of its shares.

organisation of commerce and management sources of business finance - 2 equity and preference shares equity shares and preference shares non-institutional sources - long-term

  1. more than 50

  2. more than 40

  3. more than 30

  4. more than 20

Show answer
Correct Option: A
Explanation:

For a company to be subsidiary the other company should hold 50% of its shares. Subsidiary company is also known as the nominee of the holding company.