Tag: sources of business finance - 2

Questions Related to sources of business finance - 2

Articles of unlimited company having share capital is included in_______.

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

  1. Table I

  2. Table G

  3. Table H

  4. Table F

Show answer
Correct Option: A
Explanation:

Articles of unlimited company having share capital is included in Table I. An unlimited company refers to that company where the liability of the shareholders is not limited.

Which of the following statements is true?

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

  1. A person having share warrant is a member of the company

  2. A person having share warrant is only a shareholder of the company and not a member

  3. A legal representative of a deceased shareholder is not a shareholder of a company

  4. All of the above

Show answer
Correct Option: B
Explanation:

Share warrant is a bearer document of title to shares and can be issued only by public limited company against fully paid shares. It is a negotiable instrument which is transferable from one person to another by mere delivery. On issue of warrant, it is mandatory for company to strike off name of member from its register of members and holder of warrant is merely a shareholder to the company and he is the one who not only faces the risk  of losing the warrant but also enjoys benefits arising out of it.
Therefore, A person having share warrant is only a shareholder of the company and not the member.

The shares issued for providing know how, intellectual property rights, etc are called ____________.

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

  1. Golden shares

  2. Right shares

  3. Sweat Equity shares

  4. Bonus shares

Show answer
Correct Option: C
Explanation:
Sweat equity shares’ means equity shares issued by a company to its employees or directors at a discount (to the market price) or for consideration other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called.

According to Section 54, a company may issue sweat equity shares of a class of shares already issued, if the following conditions are fulfilled,

The issue is authorized by a special resolution passed by the company;
The resolution specifies the number of shares, the current market price, consideration, if any, and the class or classes of directors or employees to whom such equity shares are to be issued;
At least one year should have elapsed, at the date of such issue, since the date on which the company had commenced business; and
Where the equity shares of the company are listed on a recognized stock exchange, the sweat equity shares should be issued in accordance with the regulations made by Securities and Exchange Board in this behalf and if they are not so listed, the sweat equity shares are issued in accordance with such rules as may be prescribed.
The rights, limitations, restrictions and provisions which are applicable to equity shares shall he applicable to the sweat equity shares issued under this section and the holder of such shares shall rank with other equity shareholders.

A company with a paid up Capital of 5,000 equity shares of Rs.10 each has a turnover of four times with a margin of 8% on sales.
The ROI of the company will be______.

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

  1. 28%

  2. 32%

  3. 35%

  4. 42%

Show answer
Correct Option: B
Explanation:

ROI= margin of 8% on sales * 4 = 32%

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

Show answer
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.

Arpana Pvt Ltd provide following information:
Sales = 10,00,000
Variable cost = 7,00,000
Fixed cost = 2,00,000
Debentures at $10\%$ = 5,00,000
What is the operating leverage of the company? 

organisation of commerce and management sources of business finance - 2 debentures / bonds debentures non-institutional sources - long-term

  1. 2

  2. 3

  3. 4

  4. 5

Show answer
Correct Option: B
Explanation:

Operating leverage = $\frac{Contribution}{EBIT}$
=  $\frac{Rs.3,00,000}{Rs.1,00,000}$
= 3

Debentures are preferred by investors who want _______ income at __________ risk.

organisation of commerce and management sources of business finance - 2 debentures / bonds debentures non-institutional sources - long-term

  1. fluctuating, lesser

  2. fixed, lesser

  3. fixed, higher

  4. fluctuating, higher

Show answer
Correct Option: B
Explanation:
The difference between the face value of the debenture and its purchase price is the return to the investor. Hence it is preferred by investors who want fixed income at lesser risk. There is a greater risk when the earnings of the company fluctuate.

Public issue of debentures requires that the issue be rated by a credit rating agency like _____.

organisation of commerce and management sources of business finance - 2 debentures / bonds debentures non-institutional sources - long-term

  1. SBI

  2. RBI

  3. SEBI

  4. CRISIL

Show answer
Correct Option: D
Explanation:

Public issue of debentures requires that the issue be rated by a credit rating agency like CRISIL. CRISIL is a global company which mainly provdes ratings to the companies.

_______ issued by a company is an acknowledgment that the company has borrowed a certain amount of money,which it promises to repay at a future date.

organisation of commerce and management sources of business finance - 2 debentures / bonds debentures non-institutional sources - long-term

  1. Interest Certificate

  2. Share Certificate

  3. Debenture

  4. Demat Certificate

Show answer
Correct Option: C
Explanation:

Debenture issued by a company is an acknowledgment that the company has borrowed a certain amount of money,which it promises to repay at a future date. It is a long term security. Fixed interest is earned by issuing the debentures.

Mahindra and Mahindra was the first company in India to issue convertible Zero Interest Debentures in January 1990.

organisation of commerce and management sources of business finance - 2 debentures / bonds debentures non-institutional sources - long-term

  1. True

  2. False

Show answer
Correct Option: A
Explanation:

Mahindra and Mahindra was the first company in India to issue convertible Zero Interest Debentures in January 1990- this is a true statement. Convertible debentures earns no interests. Mahindra and Mahindra is an MNC of India which deals with car manufacturing.