Maharashtra Board Class 12 SP Sample Paper Set 4 with Solutions

Maharashtra State Board Class 12th SP Sample Paper Set 4 with Solutions Answers Pdf Download.

Maharashtra Board Class 12 SP Model Paper Set 4 with Solutions

Time: 3 Hours
Max. Marks: 80

Notes:

1. All questions are compulsory.
2. Figures to the right indicate full marks for the questions.
3. Figures to the left indicate question numbers.
4. Answer to every question must be started on a new page.

Question 1.(A)
Answer in one sentence:

Question 1.
What is fixed capital?
Answer:
Fixed capital is the capital which is used for buying fixed assets which are used for a longer period of time in the business.

Question 2.
Who are debenture holders?
Answer:
A person holding the debentures of a company is known as the debenture holder.

Question 3.
What is the maximum deposit the Government Company can collect?
Answer:
Government Company can accept deposits from public not exceeding 35% of the paid-up share capital and free reserves of the company.

Question 4.
Who takes decision to allot the debentures?
Answer:
The Board of Directors takes decision to allot the debentures

Question 5.
What is minimum and maximum period of deposit?
Answer:
The minimum period of deposit is 6 months and the maximum period is 36 months

(B) Give one word/phrase/term:

Question 1.
The policy of using undistributed profit for the business.
Answer:
Retained earning

Question 2.
Account to be created for redemption of debentures.
Answer:
Debenture Redemption Reserve Account

Question 3.
Period within which a company has to create a charge on its tangible assets.
Answer:
Within 30 days of acceptance of secured deposits

Question 4.
The Latin word from which the word ‘dividend’ is derived.
Answer:
Dividendum

Question 5.
The organisation which acts as an intermediary between investors and borrowers.
Answer:
Financial market

(C) Correct the underlined word and rewrite the following sentences:

Question 1.
Finance is needed to pay dividend to debenture holders.
Answer:
Finance is needed to pay interest to debenture holders.

Question 2.
Debenture Trustees redress the grievances of shareholders.
Answer:
Debenture Trustees redress the grievances of debenture holders.

Question 3.
Government Company can accept deposit from members.
Answer:
Government Company can accept deposit from public.

Question 4.
Dividend is paid to creditors.
Answer:
Dividend is paid to registered shareholders

Question 5.
A broker cannot directly deal with investors.
Answer:
A jobber cannot directly deal with investors.

(D) State whether the following statements are true or false: (5)

Question 1.
The business dealing in luxurious products will require huge amount of working capital.
Answer:
True

Question 2.
Shares not offered to the public for subscription is called as subscribed capital.
Answer:
False

Question 3.
Company appoints Credit Rating Agency to protect the interest of depositors.
Answer:
False

Question 4.
Every company must issue or dispatch a share certificate to the allottee within three months after allotment of shares.
Answer:
False

Question 5.
A company cannot declare dividend on its equity shares if it has failed to repay deposit.
Answer:
True

Question 2.
Explain the following terms / concepts: (Any Four) [8]

Question 1.
Financing decision
Answer:
Financing decisions means decisions relating to selection of the right source of funds for a firm. The firm has multiple choices of sources of financing. The firm can choose whether it wants to raise equity capital or debt capital. Firm can even opt for bank loan, public deposits, debentures etc. to raise funds.

Question 2.
Debenture certificate
Answer:
A debenture certificate is a document that certifies that the holder is the debenture holder of the company. Company has to issue Debenture Certificate to the debenture holders within 6 months of allotment of debentures.

Question 3.
Dividend
Answer:
The term dividend is derived from Latin word ‘Dividendum’ which means ’that which is to be divided’. It is that part of the profits of a company which is distributed amongst its shareholders. Dividend is ’a share in distributable profits of the company to which the shareholder is entitled when it is formally declared by the company.’

Question 4.
Treasury bills
Answer:
Treasury Bills are short-term securities issued by RBI to meet the government’s short-term funds requirement. These bills are negotiable and freely transferable. They are sold to banks, individuals, firms, institutions, etc. The minimum value of T-bills is ₹ 25,000 or in multiples of ₹ 25,000. These bills are also called Zero Coupon Bonds. T-bills have three maturity periods – 91 days, 182 days and 364 days.

Question 5.
Stock Exchange
Answer:
Stock Exchange is a specific place where various securities are bought and sold. The securities include equity shares, preference shares, debentures, government securities and bonds, units of mutual funds etc. Stock markets act as intermediary between investors and borrowers and are regulated by SEBI.

Question 6.
Charge on assets
Answer:
Charge over assets means an interest or lien created on assets of the company in favour of creditors. In case company fails to pay the debt, creditors can claim it from the company’s assets. In case of issue of secured debentures or deposits, the company has to create a charge on the assets of the company or its subsidiary company or holding company. The value of charge should be adequate to cover the entire value of debentures issued and interest to be paid on it.

Question 3.
Study the following cases / situations and express your opinion: (Any Two) [6]

Question 1.
Zentech industries need more capital for expansion of business. The finance manager of Zentech industries has to make a plan for acquiring additional capital.
i. What are the main sources of finance available to a company?
ii. What is the type of decision that the finance manager is taking?
iii. What does the manager need to ensure while making financing decision?
Answer:
i. Zentech industries has the choice between raising equity capital or debt capital.
ii. The finance manager is taking financing decision.
iii. The finance manager ensures that the firm is well capitalised i.e. they have right amount of capital and the right combination of debt and equity.

Question 2.
Apple Company Ltd. plans to raise funds through Public Deposits. Its net worth is ? 10 Crores.
i. Can they accept deposits from the public?
ii. Can they accept deposits which matures after 4 years?
iii. Within what period should the company issue Deposit Receipt to its depositors?
Answer:
i. No, the company cannot accept deposits from public since its net worth is less than ₹ 100 crore.
ii. No. As the maximum period for which a deposit can be accepted is 36 months, they cannot accept deposit which matures after 4 years.
iii. Apple Company Ltd. should issue deposit receipt to the depositors within 21 days from the date of receipt of deposit money or realisation of cheque.

Question 3.
Mr. Z holds 100 shares of Peculiar Co. Ltd. in physical mode and wishes to convert the same in electronic mode:
i. Mr. Z holds a Saving Bank account with CFDH Bank Ltd. Can he deposit his shares in
this account for demat?
ii. What type of account is needed for the same?
iii. Is it the RBI which will be the custodian of shares of Mr. Z after demating?
Answer:
i. No, Mr. Z cannot deposit his shares in his bank account for demat.
ii. A demat account is required for converting physical shares into electronic holding.
iii. No, RBI will not be the custodian of the shares of Mr. Z. The depository i.e. NSDL or CDSL will be the custodian of shares of Mr. Z after demating.

Question 4.
Distinguish between the following: (Any Three) [12]

Question 1.
Fixed capital and Working capital
Answer:

Fixed Capital	Working Capital
i. Meaning
Fixed capital refers to any kind of physical asset i.e. fixed assets.	Working capital refers to excess of current assets over current liabilities.
ii. Nature
Fixed capital stays in the business almost permanently.	Working capital is circulating capital. It keeps changing.
iii. Purpose
Fixed capital is used for financing fixed assets such as land, building, equipment, etc.	Working capital ¡s used for financing short-term assets such as cash account receivable, inventory, etc.
iv. Sources
Fixed capital funding can come from issuing shares, debentures, bonds, taking long-term loans, etc.	Working capital can be funded with short-term loans, deposits, trade credit, etc.
v. Objective of Investors
Investors invest money in fixed capital hoping to make future profit.	Investors invest money in working capital for getting immediate returns.
vi. Risk
Investment in fixed capital involves more risk.	Investment in working capital is less risky.

Question 2.
Owned capital and Borrowed capital
Answer:

Owned Capital	Borrowed Capital
i. Meaning
It is that capital which is contributed by shareholders.	It is that capital which is borrowed from creditors. It is also known as debt capital.
ii. Sources
It is collected by issue of equity shares and preference shares or through retained earnings.	It is collected by way of issue of debentures, fixed deposits, loan from banks or financial institutions, etc.
iii. Return on Investment
The shareholders get dividend as a return on their investment. The rate of dividend is fluctuating in case of equity shares but fixed in case of preference shares.	The debt holders get interest as a return on their investment. Interest is paid at a fixed rate.
iv. Status
The shareholders are owners of the company.	The debt holders are creditors of the company.
v. Voting Right
The equity shareholders enjoy normal/differential voting right at the general meeting.	The creditors do not enjoy voting rights at the general meeting.
vi. Repayment of Capital
The shareholders do not enjoy priority over creditors. They are eligible for repayment of capital only after making payment to creditors at the time of winding up of the company.	The creditors get priority over the shareholders in case of return of -principal amount at the time of winding – up of the company.
vii. Charge on Assets
shareholders do not have any charge on the assets of the company.	The secured debenture holders have a charge on assets of the company.

Question 3.
Rights shares and Bonus shares
Answer:

Rights Shares	Bonus Shares
i. Meaning
In rights issue, shares are offered to the existing equity shareholders i.e. company offers them the first option to buy the new shares of a company.	Bonus shares are issued to the existing equity shareholders free of cost.
ii. Payment
The subscribers have to pay for the rights shares. These shares are offered at a price lesser than the existing market price.	Bonus shares are issued free of cost to the equity shareholders.
iii. Partly/ Fully paid up shares
The shareholders have to pay for these shares as application money, allotment money, call money etc. till the full money on shares is paid up.	Bonus shares are fully paid up shares. Therefore, no money has to be paid by the shareholders to the company.
iv. Minimum
A company has to obtain minimum subscription. If the company fails to receive minimum subscription, it has to refund the entire application money received.	There is no minimum subscription to be collected as bonus shares are issued free of cost by the company.
v. Right to
The shareholders can renounce their rights shares.	The shareholders cannot renounce their bonus shares.
vi. Purpose of Issue
Rights issue is done by a company when it wants to raise fresh funds but wants to give a chance to their existing members to increase their shareholding.	When a company has accumulated huge profits or reserves and wants to reward its existing equity shareholders, it issues bonus shares.

Question 4.
Dematerialisation and Rematerialisation
Answer:

Dematerialisation	Rematerialisation
i. Meaning
The process of conversion of physical certificates into electronic mode is called as dematerialisation.	The process of conversion of electronic holding of securities into physical certificates is called as rematerialisation.
ii. Conversion
Under dematerialisation, the paper form of securities is converted into digitally/electronically held securities.	Under rematerialisation, the electronic records are converted into physical/paper form securities.
iii. Use of form
It uses ‘DRF’,i.e. ‘Dematerialisation Request Form’ from investor to the DP.	It uses ‘RRF’, i.e. ‘Rematerialisation Request Form’ from investor to the DP.
iv. Sequence
Dematerialisation is an initial process. It is a primary and principal function of the depository.	Rematerialisation is a reverse process. It is a secondary and supporting function of depository. Already demated securities are remated.
v. Identificatior
Demated securities have no distinctive numbers. They are fungible.	Remated securities will have certificate and distinctive numbers as issued by company.
vi. Securities Maintanance Authority
Depository is the custodian of securities and records.	The issuing company is the record keeping authority. The securities are maintained by the investor.
vii. Difficulty of process
Demat is an easy process. Als0, it’s not a time consuming process.	Remat is not only a time consuming but also a complex process.
viii. Liquidity
Dematerialisation helps in increasing liquidity. Investors can easily sell shares on stock exchange  and liquidate their investment quickly.	Rematerialisation reduces the liquidity of shares. Since the shares are in paper form, it is difficult to liquidate investment quickly.

Question 5.
Answer in brief: (Any Two) [8]

Question 1.
Who are debenture trustees?
Answer:
Debentures are issued by the company to raise funds for long-term as they can be repaid after a long period. It is a borrowed capital of the company. The debenture trustees can be explained as follows:

i. Appointment of Debenture Trustees
A company which issues prospectus or invites more than 500 people to buy its debentures has to appoint one or more Debenture Trustees. The companies issuing secured debentures must also appoint Debentures Trustees.

ii. Purpose of Appointment
Debentures Trustees are institutions which protect the interest of the debenture holders.

iii. Custodians of Assets
A company creates a charge on its movable or immovable assets or assets of its subsidiary company or holding company. A charge is created in favour of the Debenture Trustees. The Trustees become the custodian of the assets on which charge has been created.

iv. Time of Appointment
Debenture Trustees are appointed before prospectus or letter of offer or offer letter is issued.

v. Written Consent
The Trustees must give a written consent to act as Debenture Trustees.

vi. Mention in Prospectus/ Letter of Offer/ Offer Letter
The prospectus or letter of offer or offer letter must mention the names of Debenture Trustees.

Question 2.
Explain disadvantages of physical mode of holding securities.
Answer:
The securities can be held in two modes, viz. physical mode and electronic or dematerialised mode. Physical mode means securities are held in the form of paper certificates. The following are the disadvantages of physical mode of holding securities:

i. Delay in Allotment of Securities
Allotment of new securities takes longer time in physical mode.

ii. Risk
There is a risk element involved since paper certificates can be lost, damaged, torn, stolen, misplaced during transit, etc.

iii. Risk of Bad Delivery
Delivering certificates which are torn, fake, etc. creates problems in buying and selling of securities.

iv. Efforts in Duplicating
Obtaining duplicate certificates (if original certificate is lost) involves time, efforts and money.

v. Delay in Transfer and Transmission of Securities
More time is involved in transfer and transmission of securities as it involves actual handling of physical certificates.

Question 3.
Define dividend and explain any four features of dividend.
Answer:
Meaning

1. The term ‘Dividend’ is derived from the Latin word ’Dividendum’ which means ’that which is to be divided’.
2. It is a part of the profits of the company that is distributed among its shareholders.
3. Dividend is ’a share in distributable profits of the company to which the shareholder is entitled when it is formally declared by the company.’
4. Usually, the term ’Dividend’ refers to annual/ final dividend unless it is specifically mentioned as interim dividend.

Definitions

i. The Institute of Chartered Accountants of India (ICAI) has defined dividend as, “a distribution to shareholders out of profits or reserves available for this purpose.”

ii. The Supreme Court has defined it as, “In case of going-concern, it means portion of profits of a company, which is allotted to the holders of shares in a company.”
[Going concern refers to a business that is operating and making profits.]

Features

1. Dividend is the portion of profits of the company paid to its shareholders.
2. It is payable out of the profits of the company.
3. It is an unconditional payment made by the company.
4. A company can pay dividend only to the shareholders viz. Equity and Preference.
5. If the company has issued equity shares with differential rights as to dividend, the terms of issue of such shares will govern rights of shareholders about receiving the dividend.
6. Dividend cannot be declared out of capital.
7. Dividend can be declared only on recommendation of the Board of Directors.
8. Dividend as recommended by Board of Directors is approved and declared by a resolution passed at the Annual General Meeting by the shareholders.
9. Dividend for any previous year cannot be declared once that year’s Annual Account has been approved in the AGM.
10. Dividend once approved and declared by shareholders creates a debt. It cannot be revoked.
11. Dividend includes interim dividend.
12. Dividend must be paid in cash and not in kind.
13. Dividend is to be paid on paid-up value of shares.
14. Dividend cannot be paid on calls paid in advance.

Question 6.
Justify the following statements: (Any Two) [8]

Question 1.
Company issuing deposit must open Deposit Repayment Reserve Account.
Answer:

1. A company issues deposits to raise finance for the company.
2. It has to follow certain provisions in order to accept deposits.
3. Every company accepting deposits has to open a Deposit Repayment Reserve Account in a scheduled Bank.
4. Every year, on or before 30th April, company has to deposit an amount not less than 20% of the amount of deposits maturing during the current year and following financial year.
5. This account can be used only for repaying deposit.
6. Hence, company issuing deposit must open Deposit Repayment Reserve Account.

Question 2.
Approval of members is not needed for interim dividend.
Answer:

1. Dividend declared by the Board of Directors between two AGMs is called Interim Dividend.
2. Interim dividend is paid in the middle of the accounting year i.e. before the finalisation of annual accounts for the year.
3. Articles of Association of the company must authorise the Board of Directors to declare Interim Dividend.
4. The Board Meeting has to pass a resolution for declaring the Interim Dividend
5. Thus, the approval of members is not needed for interim dividend.

Question 3.
Financial markets act as link between investor and borrower.
Answer:

1. The financial market provides a platform where both, buyers and sellers can find each other easily.
2. Investors who have savings are linked with entrepreneurial borrowers that require investment.
3. As a result, the idle funds in the hands of investors can be productively used by corporates.
4. This market enables investors to invest their saving according to their choices and risk assessment.
5. Hence, financial markets act as link between investor and borrower.

Question 4.
Stock exchanges work for the growth of the Indian economy.
Answer:

1. Stock exchange is a place where various types of securities are purchased and sold.
2. Securities of various companies are traded on the stock exchange.
3. Investors invest in those companies which give good return on investment.
4. Hence, companies also try to invest in the most productive investment projects so as to give good return on investors’ money.
5. This leads to capital formation and economic growth.
6. Thus, stock exchanges work for the growth of the Indian economy.

Question 7.
Attempt the following: (Any Two) [10]

Question 1.
Write a letter to the member for the issue of share certificate.
Answer:

ZOOM MOTORS LTD.
Registered office: Plot No. 20, Commercial Towers, M. G. Road,
Mumbai – 400001
CIN: L10020 MH 2000 PLC123456

Phone: 022-66665555
www.zoommotors.com
Fax: 022-22331111
Ref. No.: A/1010/20-21

Website:

Email: [email protected]
Date: 16^th April, 2020

Mr. Sameer Joshi
201, Comfort Apartments,
L. B. S. Road,
Mumbai – 400002

Sub: Issue of Share Certificate

Dear Sir,
This is to inform you that as per your Request Application No. 333, I am hereby authorised to issue you a Share Certificate. The said Share Certificate will be delivered to you within 15 days from the date of this letter by registered post to your registered address as mentioned in the Register of Members.

The details of Issue of Share Certificate are as follows:

It shall always be our endeavour to provide best of our services to you at all time.

Thanking you,

Yours faithfully,
For Zoom Motors Ltd.

Sign
Mrs. Priya Prabhu
Company Secretary

Question 2.
Draft a letter of allotment to debenture holder.
Answer:

ZOOM MOTORS LTD.
Registered office: Plot No. 20, Commercial Towers, M. G. Road,
Mumbai – 400001
CIN: L10020 MH 2000 PLC123456

Phone: 022-66665555
Fax: 022-22331111
Ref. No.: D/1010/20-21

Website: www.zoommotors.com
Email: [email protected]
Date: 20^th May, 2020

Mr. Sameer Joshi
201, Comfort Apartments,
L.B.S. Road,
Mumbai – 400002

Sub: Allotment of Debentures

Dear Sir,

In response to your application No. DI2345 dated 30^th April, 2020, I am directed by the Board of Directors to inform you that, you have been allotted 100, 10% Non-convertible secured debentures of ₹100/- each. The tenure of debentures is 5 years.

These debentures are allotted to you as per the Board Resolution passed at the Board Meeting held on 18^th May, 2020 and as per terms and conditions of Articles of Association of the company and Debenture Trust Deed.

The details of allotment of debentures are as follows:

The Debenture Certificate is enclosed herewith.
Thanking you,

Yours faithfully,
For Zoom Motors Ltd.
Sign
Mrs. Priya Prabhu
Company Secretary
Encl: Debenture Certificate

Question 3.
Write a letter to depositor regarding renewal of his deposit.
Answer:

ZOOM MOTORS LTD.
Registered office: Plot No. 20, Commercial Towers, M. G. Road,
Mumbai – 400001
CIN: L10020 MH 2000 PLC123456

Phone: 022-66665555
Fax: 022-22331111
Ref. No.: D/1010/20-21

Website: www.zoommotors.com
Email: [email protected]
Date: 20th May, 2020

Mr. Sameer Joshi
201, Comfort Apartments,
L. B. S. Road,
Mumbai – 400002

Sub: Renewal of Fixed Deposit

Dear Sir,

We hereby acknowledge the receipt of your application for renewal of deposit of ₹ 50,000 for a further period of two years. Along with the application, we have also received original Fixed Deposit Receipt (FDR) No. 123, and the same has been placed before the Board for consideration and approval.

The Board of Directors, by passing a resolution at the Board meeting held on 15^th May, 2020 has decided to renew the deposits for a further period of 2 years on the same terms and conditions.

A Deposit Receipt No. 456 is enclosed along with this letter.
Thanking you,

Yours faithfully,
For Zoom Motors Ltd.

Sign
Mrs. Priya Prabhu
Company Secretary
Encl: Fixed Deposit Receipt No. 456

Question 8.
Answer the following: (Any One) [8]

Question 1.
What is an equity share? Explain its features.
Answer:
Equity shares are fundamental source of financing business activities. These shares are also known as ordinary shares. Equity shareholders are the real owners of the company as they bear ultimate risk associated with the ownership. Equity shares do not carry any fixed commitment of dividend. After paying claims of all other investors, the remaining funds belong to equity shareholders. Thus, equity shareholders are ‘residual claimants’ of the income and assets. Equity shareholders participate in the management of their company. They are invited to attend general meetings and are allowed to vote on all matters discussed at these meetings. They elect their representatives to manage the company.

The main features of equity shares are as follows:

i. Permanent Capital
Equity shares are irredeemable shares. The amount received from equity shares is not refundable by the company during its life time. Equity shares become refundable only in the event of winding up of the company or when the company decides to buy back shares. Thus, equity share capital is long-term and permanent capital of the company.

ii. Fluctuating Dividend
Equity shares do not have a fixed rate of dividend. The rate of dividend depends upon the amount of profits earned by the company. If a company earns more profit, dividend is paid at a higher rate. On the other hand, if there is insufficient profit or loss, the Board of Directors may postpone the payment of dividend. Equity shareholders cannot compel them to declare and pay dividend. The income of equity shareholders is uncertain and irregular. The equity shares get dividend at a fluctuating rate.

iii. Rights
Equity shareholders enjoy certain rights as follows:

a. Right To Vote: It is the basic right of equity shareholders through which they elect directors as well as alter Memorandum and Articles of Association, etc.
b. Right To Share in Profit: It is an important right of equity shareholders. They have right to share in profit. If the company is successful and makes handsome profit, they have advantage of getting large dividend.
c. Right To Inspect Books: Equity shareholders have right to inspect statutory books of their company.
d. Right To Transfer Shares: Equity shareholders enjoy the right to transfer shares as per the procedure laid down in the Articles of Association.

iv. No Preferential Right
Equity shareholders do not enjoy preferential right in respect of payment of dividend. They are paid dividend only after dividend on preference shares has been paid. Similarly, at the time of winding up of the company, the equity shareholders are paid last. Further, if no surplus amount is available, equity shareholders will not get anything.

v. Controlling Power
The control of the company is vested with equity shareholders. They are often described as ‘real masters’ of the company. It is because they enjoy exclusive voting rights. The Companies Act, 2013 provides the right to cast vote in proportion to shareholding. They can exercise their voting right by proxies, without even attending meeting in person. By exercising voting right, they can participate in the management and affairs of the company. They elect their representatives called as ‘Directors’ for management of the company. They are allowed to vote on all matters discussed at the general meeting. Thus, equity shareholders enjoy control over the company.

vi. Risk
Equity shareholders bear maximum risk in the company. They are described as ‘shock absorbers’ when a company faces financial crisis. If the income of a company falls, the rate of dividend also comes down. Due to this, market value of equity shares comes down, resulting into capital loss. Thus, equity shareholders are main risk takers.

vii. Residual Claimant
Equity shareholders as owners are residual claimants to all earnings after expenses, taxes, etc. are paid. A residual claim means the last claim on the earnings of a company. Although equity shareholders come last, they have advantage of receiving entire earnings that is left over.

viii. No Charge On Assets
Equity shares do not create any charge over assets of the company.

ix. Bonus Issue
Bonus shares are issued as a gift to equity shareholders. These shares are issued free of cost to existing equity shareholders. These are issued out of accumulated profits. Bonus shares are issued in proportion to the shares held. Thus, capital investment of equity shareholder tends to grow on its own. This benefit is available only to the equity shareholder.

x. Rights Issue
When a company needs more funds for expansion and raises further capital through issue of shares, the existing equity shareholders may be given priority to get newly offered shares. This is called ‘Rights Issue’. The shares are offered to equity shareholders first, in proportion to their existing shareholding.

xi. Face Value
The face value of equity shares is low. It can be generally ‘ 10 per share or even ₹ 1 per share.

xii. Market Value
The market value of equity shares fluctuates according to the demand and supply of these shares. The demand and supply of equity shares depend on profits earned and dividend declared. When a company earns huge profit, the market value of it’s shares increases. On the other hand, when it incurs loss, the market value of it’s shares decreases. There are frequent fluctuations in the market value of equity shares in comparison to other securities. Therefore, equity shares are more appealing to the speculator.

xiii. Capital Appreciation
Share capital appreciation takes place when the market value of shares increases in the share market. Profitability and prosperity of a company enhances its reputation in the share market and facilitates appreciation of market value of equity shares.

Question 2.
Explain the classification of share capital.
Answer:
Share capital refers to the capital made up of equity shares and preference shares. Usually, in share capital, the proportion of equity shares is more than preference shares. The classification of share capital can be explained as follows:

i. Authorised/ Nominal Or Registered Capital

a. Authorised capital is the maximum capital that a company can raise by issuing shares as authorised by Memorandum of Association.
b. It is also called as registered capital as it is mentioned in the Capital Clause of Memorandum of Association and the company pays stamp duty on this amount at the time of incorporation.
c. Authorised capital is calculated considering the need of capital of a company at present as well as in future.
d. Authorised capital is also called as nominal capital as usually a company never issues the entire authorised capital.
e. E.g. ‘M’ Co. Ltd. has authorised capital of ₹ 10,00,000 which can be divided into 1,00,000 equity shares having a face value of ₹ 10/- each.
f. A company can increase its authorised capital by altering its Memorandum of Association.

ii. Issued and Unissued Capital

a. Issued capital is that part of authorised capital which is offered by the company to prospective investors for subscription. Thus, it consists of shares that the company is offering to the public to buy.
b. The balance part of authorised capital not offered to the public is called as unissued capital.
c. In future, the company can issue shares from the unissued capital.
d. The issued capital of a company may be equal to or less than the authorised capital.
e. E.g. ‘M’ Co. Ltd. can have issued capital of ₹ 4,00,000 divided into 40,000 equity shares with face value of ₹ 10/- each and the unissued capital will be ₹ 6,00,000 divided into 60,000 equity shares of ₹ 10/- each.

iii. Subscribed and Unsubscribed Capital

a. Subscribed capital is that part of issued capital which has been subscribed or taken up (bought) by investors (subscribers).
b. The public may or may not subscribe for the entire issued capital. Hence, that part of the issued capital not subscribed by the investors is called as unsubscribed capital.
c. Thus, the subscribed capital may be equal to or less than the issued capital.
d. E.g. If ‘M’ Co. Ltd. has issued capital of ₹ 4,00,000 i.e. has issued 40,000 equity shares, then the company’s subscribed capital can be ₹ 3,00,000 divided into 30,000 equity shares of ₹ 10/- each. Hence, the unsubscribed capital will be ₹ 1,00,000 divided into 10,000 equity shares of ‘ 10/- each.

iv. Called-Up Capital, Uncalled Capital and Reserve Capital

a. At the time of issue, full value of the shares is usually not demanded by the company.
b. A company collects the full value of shares in instalments as per its requirement of funds. Each instalment is called as ‘calls’.
c. Called-up capital is that part of subscribed capital which a company has ‘called’ or demanded to be paid by the shareholders.
d. The balance capital which is not demanded from the shareholders is called as uncalled capital.
e. Reserve capital is a part of uncalled capital. A company can decide to keep aside a part of its uncalled capital to be called up only at the time of winding up of a company to meet its financial requirements.
f. E.g. M’ Co. Ltd. may have called up capital of ₹ 1,50,000 i.e. 30,000 equity shares of face value of ₹ 10/- each out of which ₹ 5/- per share has been called- up/ demanded by the company.
If the company decides to keep ₹ 1/- per share as capital to be collected at the time of winding up, the reserve capital will be ₹ 30,000 i.e. 30,000 equity shares of ₹ 10/- each where ₹ 1 per share is kept as reserve capital.
Uncalled capital will be ₹ 1,20,000 i.e. 30,000 equity shares where ₹ 4 per share will be called up in future.

v. Paid Up Capital and Calls in Arrears

a. Paid up capital is the total amount of money actually paid up by the shareholders when the company has called up or demanded them to pay.
b. The amount not paid up by the shareholders is known as calls in arrears or unpaid calls.
c. Every shareholder has to pay calls, as and when the company demands. Failure to pay the calls may lead to forfeiture of shares.
d. E.g. M’ Co. Ltd. has made a call of ₹ 5 per share, so if all shareholders have paid the calls, then the paid up capital will be ₹ 1,50,000 (30,000 equity shares × ₹ 5 per share). But if 10,000 equity shares calls are not paid then the paid up capital will be ₹ 1,00,000 (20,000 equity shares × ₹ 5 per share) and calls-in-arrears will be ₹ 50,000 (10,000 equity shares × ₹ 5 per share).

Maharashtra Board Class 12 SP Previous Year Question Papers