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Business Studies

Merits and Demerits of Equity Capital

Do equity sha...

Question

Do equity shares provide creditworthiness to the company and confidence to prospective loan providers?

A

True

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B

False

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Solution

The correct option is B
False

Equity shares neither provide creditworthiness to the company nor confidence to prospective loan providers.

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Q. As per Rule 20 of the Companies (Management and Administration) Amendment Rules, 2014, every company which has listed its equity shares on a recognized stock exchange and every company having not less than ________ shall provide to its members facility to exercise their right to vote on resolutions proposed to be considered at a general meeting by electronic means.

What advantages does issue of debentures provide over the issue of equity shares?

Q. ' Rakesh Steel Lts.' is a large and creditworthy company manufacturing steel for the Indian market. It now wants to cater to the Asian market and decides to invest in new hi-tech machines. Since the investment is large, it requires long term finance. It decides to raise funds by issuing equity shares. the issue of equity shares involves huge flotation cost. To meet the expenses of flotation cost the company decides to tap the money market.

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Q. X ltd provides the following information:

12% Preference Shares of Rs 10 each	6,00,000
General reserve	3,00,000
Profit and loss account	5,00,000
Securities Premium	70,000
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Cash	1,00,000

The 12% preference shares are redeemable at a premium of 10%. The company wishes to maintain the cash balance at Rs 50,000. For the purpose of redemption of preference shares, It proposed to sell the investment for Rs 4,00,000. The company proposes to issue sufficient number of equity shares of Rs 100 each at a premium of 5% to raise required cash resources.
Number of equity shares to be issued is _____________.

Q. Better Prospect Ltd. acquired land costing ₹ 1,00,000 and in payment allotted 1,000 Equity Shares of ₹ 100 each as fully paid. Further, the company issued 4,000 Equity Shares to public . The shares were payable as: ₹ 30 on application ; ₹ 30 on allotment; ₹ 40 on first and final call.
Applications were received for all shares which were allotted . All the money was received except the call on 200 shares.
Pass journal entries and prepare Balance Sheet of the company.

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