Advertisements
Advertisements
Question
Explain any three disadvantages of issuing equity shares, from the Company's point of view.
Solution
1. If only equity shares are issued, the company cannot take advantage of trading on equity.
2. As equity capital cannot be redeemed, there is a danger of overcapitalization.
3. Equity shareholders can put obstacles for management by manipulation and organizing themselves.
APPEARS IN
RELATED QUESTIONS
Match the correct pairs.
| Group A | Group B | ||
| a) | Equity share capital | 1) | Link between depository and investor. |
| b) | Transfer of shares | 2) | Redeemable capital. |
| c) | Depository participant | 3) | Optimistic about rise in prices of securities. |
| d) | Bonus share | 4) | Conversion into equity shares. |
| e) | Bear | 5) | Capitalisation of profit. |
| 6) | Sale or gift of shares to another person. | ||
| 7) | Pessimistic about fall in prices of securities. | ||
| 8) | Permanent capital | ||
| 9) | Transfer of shares by operation of law. | ||
| 10) | Link between SEBI and depository. |
Name the shareholders who are real masters of the company.
Rajan Ltd . purchased assets from Geeta & Co . for ₹ 5,00,000. A sum of ₹ 1,00,000 was paid by means of a bank draft and for the balance due Rajan Ltd. issued equity Shares of ₹ 10 each at a premium of 25%. journalise the above transactions in the books of the company.
Jain Ltd purchased machinery costing ₹ 10,00,000 from Ayer Ltd. 50% of the payment was made by cheque and for the remaining 50% , the company issued Equity Shares of ₹ 100 each at a premium of 25% . Pass necessary Journal entries in the books of Jain Ltd . for the above transaction.
Raja Ltd. invited applications for issuing 50,000 Equity Shares of ₹ 10 each . The amount was payable as follows:
| On application --- ₹ 3 per share On allotment --- ₹ 5 per share, On first and final call --- Balance. |
Applications for 70,000 shares were received . Allotment was made to all applicants on pro rata basis. Excess money received on application was adjusted towards sums due on allotment . Ramesh, who had applied for 700 shares , did not pay the allotment money and on his failure to pay the allotment money his shares were forfeited. Afterwards , the first and the final call was made . Adhar, who had been allotted 500 shares, did not pay the first and final call . His shares were also forfeited . Out of the forfeited shares 900 shares were reissued at ₹ 8 per share as fully paid-up . The reissued shares included all the shares of Ramesh.
Pass necessary journal entries for the above transactions in the books of the company.
Distinguish between equity shares and preference shares.
Equity Shares are ______.
From the following Balance Sheets of Vinayak Ltd. as of 31st March 2021, Prepare a Common-size Balance Sheet.
| Vinayak Ltd. Balance Sheet as of 31st March, 2021 | |||
| Particulars | Note no. | 31.3.2021 (₹) | 31.3.2020 (₹) |
| I EQUITY AND LIABILITIES | |||
| 1. Shareholder’s Funds: | |||
| a. Share Capital | 30,50,000 | 20,00,000 | |
| b. Reserve and Surplus | 2,80,000 | 6,00,000 | |
| 2. Current Liabilities: | |||
| a. Trade Payable | 6,70,000 | 4,00,000 | |
| Total | 40,00,000 | 30,00,000 | |
| II ASSETS | |||
| 1. Non-Current Assets: | |||
| a. Fixed Assets: | |||
| i. Tangible Assets | 16,00,000 | 12,00,000 | |
| ii. Intangible Assets | 2,00,000 | 3,00,000 | |
| 2. Current Assets | |||
| a. Inventories | 8,00,000 | 3,00,000 | |
| b. Trade Receivables | 12,00,000 | 10,00,000 | |
| c. Cash and Cash Equivalents | 2,00,000 | 2,00,000 | |
| Total | 40,00,000 | 30,00,000 | |
When Equity Shares dominate the capital structure, the capital is considered as high geared.
Give any four types of Preferences shares.
