Equity share capital carries __________.

Fixed interest

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Fixed bonus

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Fixed dividend

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No fixed dividend

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Solution

The correct option is D No fixed dividend
Equity shares represent the ownership of a company and capital raised by the issue of such shares is known as ownership capital or owner's funds. They are the foundation for the creation of a company. Equity shareholders are paid on the basis of earnings of the company and do not get a fixed dividend.

The effect of dividends on stockholders' equity is dictated by the type of dividend issued. When a company issues a dividend to its shareholders, the value of that dividend is deducted from its retained earnings.

Even if the dividend is issued as additional shares of stock, the value of that stock is deducted. However, a cash dividend results in a straight reduction of retained earnings, while a stock dividend results in a transfer of funds from retained earnings to paid-in capital. While a cash dividend reduces stockholders' equity, a stock dividend simply rearranges the allocation of equity funds.

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Similar questions

Payment of fixed rate of dividend to preference shares may enable a company to declare higher rates of dividend for the equity shareholders in good times.

Differentiate between equity shares and preference shares on the basis of :

(a) Payment of dividend

(b) Refund of capital

(d) Voting Rights

Assuming that the Debt-Equity Ratio is 2 : I, state, giving reasons, which of the following transactions would (I) Increase; (ii) Decrease; (ii.) Not alter the Debt-Equity Ratio :

(i) Issue of new shares (Preference/Equity) for Cash.

(ii) Issue of new shares (Preference/Equity) against purchase of fixed asset.

(iii) Buy-back of its own shares by a Company.

(iv) Issue of Debentures for Cash.

(v) Issue of Debentures against purchase of fixed asset.

(vi) Repayment of Long-term Borrowings.

(vii) Conversion of Debentures into Equity Shares/Preference Shares.

(viii) Sale of a fixed asset at par.

(ix) Sale of a fixed asset at profit.

(x) Sale of a fixed asset at loss.

(xi) Purchase of a fixed asset on a credit of 2 months.

(xii) Purchase of a fixed asset on long-term deferred payment basis.

(xiii) Issue of Bonus Shares.

Q. Debentures interest is paid at a pre-determined _________ while dividend on equity shares is paid at a ______.

Q. The authorized capital of CAS Ltd. consists of both cumulative preference shares and equity shares. Each 5% cumulative preference share has a par value Rs 100. Each equity share has a par value Rs 10. During the year the cumulative preference share capital balance was Rs 4,00,000 and the equity share capital balance was Rs 10,00,000
If dividend declarations totalled Rs 16,000 and Rs 30,000 in the previous year and current year respectively, the dividends allocated to the equity share holders in the current year = ?

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