Maharashtra Board Class 12 SP Sample Paper Set 6 with Solutions

Maharashtra State Board Class 12th SP Sample Paper Set 6 with Solutions Answers Pdf Download.

Maharashtra Board Class 12 SP Model Paper Set 6 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)
Give one word / phrase / term: (5) [20]

Question 1.
A key determinant of success of any business function.
Answer:
Finance

Question 2.
Authority which has power to issue debentures.
Answer:
Board of Directors

Question 3.
Maximum tenure of a deposit.
Answer:
36 months

Question 4.
An acknowledgement of debt issued by the company under its common seal.
Answer:
Debenture

Question 5.
An acknowledgement of the fixed deposit accepted by a company.
Answer:
Fixed Deposit Receipt

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

Question 1.
Equity shareholders enjoy fixed rate of dividend.
Answer:
False

Question 2.
Special Resolution is needed to issue convertible debentures.
Answer:
True

Question 3.
Deposit Trust Deed is an agreement between company and Deposit Trustee.
Answer:
True

Question 4.
Money market is the market for the long-term funds.
Answer:
False

Question 5.
Return of deposit must be filed every year on or before 31^st March.
Answer:
False

(C) Select the correct answer from the options given below and rewrite the statements: (5)

Question 1.
Corporate finance deals with the acquisition and use of ___ by business corporation.
a. goods
b. capital
c. land
Answer:
b. capital

Corporate finance deals with the acquisition and use of capital by business corporation.

Question 2.
The details of allotment of Debentures must be entered in ___.
a. Register of debenture
b. Register of members
c. Register of creditors
Answer:
a. Register of debenture

The details of allotment of Debentures must be entered in register of debenture.

Question 3.
A company must give Deposit Receipt to the depositor within ___ of its acceptance.
a. 1 week
b. 4 weeks
c. 3 weeks
Answer:
c. 3 weeks

A company must give Deposit Receipt to the depositor within 3 weeks of its acceptance.

Question 4.
Final dividend is declared at ___ meeting.
a. extraordinary general
b. statutory
c. annual general
Answer:
Final dividend is declared at Annual general meeting.

Question 5.
The practice of buying and selling within the same trading day before the close of the market on that day is called ___.
a. insider trading
b. day trading
c. auction
Answer:
b. day trading

The practice of buying and selling within the same trading day before the close of The market on that day is called Day trading.

(D) Match the pairs:

Group ‘A’	Group ‘B’
1. Capital Budgeting	a. Financing decision
2. Foreign stock exchanges	b. NYSE and NASDAQ
3. FPO	c. Charge on tangible assets
4. Secured deposits	d.  Capital offered to public to subscribe
5. Capitalisation of Reserve Fund	e. BSE and NSE
	f. Investment decision
	g. Financing decision
	h. Any issue after IPO
	i. Bonus shares
	j. Investment decion

Answer:

Group ‘A’	Group ‘B’
1. Capital Budgeting	a. Investment decision
2. Foreign stock exchanges	b. NYSE and NASDAQ
3. FPO	c. Any issue after IPO
4. Secured deposits	d. charge on tangible assets
5. Capitalisation on Reserve Fund	e. Bonus shares

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

Question 1.
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. These assets are not meant for resale. It stays in the business for long period almost permanently. Examples of fixed capital are capital used for purchasing land and building, furniture, plant and machinery etc.

Question 2.
Secured Deposit
Answer:
Secured Deposit is a deposit for which the company has to put up a tangible asset as a guarantee for the deposit. It provides security to the depositor. A Company accepting secured deposit from public, within thirty days of acceptance, has to create a charge on its tangible assets for an amount not less than the amount of deposit accepted.

Question 3.
Final Dividend
Answer:
Final Dividend is declared and paid after the close of the financial year. It is decided and recommended by the Board of Directors. It is declared by the shareholders in the ASM. Its declaration does not need authorisation by Articles of Association. It is declared from different sources like; current year’s profits, free reserves, capital profits, Money provided by Govt, for dividend, etc.

Question 4.
Capital market
Answer:
It is the market for borrowing and lending long-term capital required by business enterprises. The financial assets dealt with in the capital market have long or indefinite maturity period. In this market, the capital funds comprising both equity and debt are issued and traded. The capital market is a core of a country’s financial system as it helps in mobilisation of resources.

Question 5.
SEBI
Answer:
The Securities and Exchange Board of India (SEBI) is the regulator of the capital, markets in India. SEBI was set up in 1992 with the objective of promoting the securities market, protecting the interest of the investors in securities market and to regulate the securities market. SEBI issues rules and regulations to be followed by the issuers of securities, the market intermediaries and the investors.

Question 6.
Unpaid Dividend
Answer:
The dividend which is declared by the company but has not been paid by it or claimed by a shareholder within 30 days of its declaration is termed as Unpaid and Unclaimed Dividend. The Unpaid Dividend should be transferred by the company to ‘Unpaid Dividend Account’ opened in a scheduled bank. This transfer should happen within 37 days from the declaration of dividend.

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

Question 1.
The management of ‘Maharashtra State Road Transport Corporation’ wants to determine the size of working capital.
i. Being a public utility service provider, will it need less working capital or more?
ii. Being a public utility service provider, will it need more fixed capital?
iii. Give one example of public utility service that you come across on day-to-day basis.
Answer:
i. Being a public utility service provider, it will have a continuous flow of cash from its customers and hence, will need less working capital.

ii. Being a public utility service provider, it will’have to invest huge amounts in fixed assets and hence, will need more fixed capital.

iii. ‘Maharashtra State Electricity Board’ is an example of public utility service.

Question 2.
Rose limited company proposes to issue debentures to the public to raise funds. After discussions, the Board of directors have decided to issue secured, redeemable, non¬convertible debentures with a tenure of ten years. Please advise the board on following matters:
i. Should the company appoint Debenture trustee?
ii. Should the company create a charge on its assets?
iii. Can the tenure of debentures be less than ten years?
Answer:
i. Yes, the company should appoint Debenture Trustees. This is because if the company issues prospectus or invites more than 500 people (either Public or its Members), it has to appoint one or more Debenture Trustees.

ii. Yes, Since the company is issuing secured debentures, it should create charge on its assets.

iii. Yes, the tenure of debentures can be less than ten years. All secured debentures should be redeemed within 10 years from the date of its issue.

Question 3.
Mr. R holds 2000 shares of Denmark Co. Ltd. in demat mode.
i. He wants to make his wife, the Beneficial Owner (BO). But his DP says that he can’t. Why?
ii. How can he make his wife the BO?
iii. Which instructions will Mr. R have to give to his DP for transferring shares to his wife?
Answer:
i. The BO is the investor of securities who has availed the services of depository participant. In this case as the shares are held in Mr. R’s name, so only he is the Beneficial Owner.

ii. Mr. R can transfer the ownership of his shares to his wife through an off market transaction and can make his wife the beneficial owner (BO).

iii. Mr. R will have to give delivery instructions to his DP to move securities from his account to his wife’s demat account

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

Question 1.
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 shores 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 ore 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
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
The 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 2.
Fixed price issue method and Book building method
Answer:

Fixed Price Issue Method	Book Building Method
i. Meaning
Under this method, the issue price of shares is mentioned in the prospectus and investors have to buy shares at that pre-determined price only.	Under this method, the issue price of shares is determined by a bidding process. The investors are given a price band and asked to bid at a price within the bond. This way company arrives at a price at which it will sell its shares.
ii. Price of shares
The exact price of shares is known in advance and it is mentioned in the prospectus.	The exact price of shares is not known in advance. Only the minimum price and maximum price at which the company is willing to sell the shares is known in advance.
iii. Price of shares
A company has to issue a prospectus and it contains the details of price at which shares are offered and the total number of shares offered by the company.	A company issues a Red Herring Prospectus. It contains only the price band and the total number of shares offered by the company.
iv. Determine of Demand
A company comes to know the public demand for its shares only after the closure of the issue.	A company con know the public demand for its shares every day. The bids are registered in the book everyday till the closure of the issue.
v. Payment of Application Money
Application money or entire issue price has to be paid by the investor at the time of submitting his application for shares.	Only application money has to b paid at the time of bidding. Money will be collected only after the issue price has been fixed.
vi. When Used
It can be used for any issue i.e. public issue, rights issue, ESOS, etc.	It is usually used in public issues i.e. IPO and FPO.

Question 3.
Dividend and Interest
Answer:

Dividend	Interest
i. Meaning
Dividend is the return payable to the shareholders of the company for their investment in the share capital.	Interest is the return payable to the creditors of the company (viz. debenture holders! deposit holders) for the loan given by them to the company.
ii. Given to
Dividend is paid to the member i.e. the owners of the company.	Interest is paid to the creditor of the company.
iii. Obligation
Dividend is to be paid only when company has made profits. Therefore, there is no obligation or compulsion to pay dividend.	Interest is not linked to the profits of the company. The payment of interest is an obligation and has to be compulsorily paid by the company.
iv. When is it payable?
Dividend is payable when a company earns sufficient profit in a year after fulfilling all obligations.	Interest is payable every year irrespective of the profits of the company.
v. Rate
Dividend is paid at a fluctuating rate to the equity shareholders since it is linked to the profits of company.	The rate of interest is fixed and pre-determined at the time of issue of the security.
vi. Resolution
Payment of final dividend requires a Board resolution and an Ordinary Resolution at the AGM while interim dividend can be paid by passing only a Board Resolution	Payment of interest does not require passing of a resolution at any meeting.
vii. Accounting Treatment/Aspect
Dividend is an appropriation of profit.	Interest is a charge on profit.

Question 4.
Primary market and Secondary market
Answer:

Primary Market	Secondary Market
i. Meaning
The issue of new securities by the company is done in the primary market.	The securities issued earlier are traded in the secondary market.
ii. Mode of Investment
In primary market, the securities are acquired directly from the company. It involves direct investment in securities.	In secondary market, the securities are acquired from other stakeholders. It involves indirect investment in securities.
iii. Parties in Action
The parties dealing in primary market are company and investors.	The parties dealing in secondary market are only investors.
iv. Intermediary
The underwriters are the intermediaries in primary market.	The security brokers are the intermediaries in secondary market.
v. Value of Security
The price of security in the primary market is fixed as it is decided by the company.	The price of security in the secondary market is fluctuating based on the demand and supply conditions in the market.

Question 5.
Answer in brief: (Any Two)

Question 1.
Explain briefly the procedure for issue of debentures.
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 and the debenture holders are the creditors of the company. The steps involved in the process of issuing debentures are as follows:

i. Pass Resolution in Board Meeting
A company has to pass the following resolutions in the Board Meeting:

a. Amount and type of debentures to be issued as well as the terms and conditions for issue
b. Approve prospectus or offer letter or letter of offer
c. Approve appointment of Debenture Trustees and get their written consent
d. Authorise Board to create charge on assets of the company
e. Call Extra-ordinary General Meeting (EGM) if the Board’s borrowing powers need to be increased
f. Authorise Board to open a separate bank account for receiving money from applicants

ii. Hold Extra-Ordinary General Meeting (EGM)
If the borrowing powers of the Board are to be increased, EGM must be held to get the shareholders’ approval through a Special Resolution.

iii. Obtain Credit Ratino
A company gets its debentures rated by one or more credit rating agencies. The ratings must be mentioned in the prospectus/ offer letter/ letter of offer.

iv. Filing with Registrar of Companies
Secretary has to file the Special Resolution and a copy of prospectus/ offer letter/ letter of offer with Registrar of Companies within 30 days of the Board Meeting.

v. Enter into Underwriting Agreement
A company enters into an underwriting agreement for underwriting its debenture issue.

vi. Issue Prospectus/ Offer Letter/ Letter of Offer
A company issues prospectus if it is inviting the public to buy its debentures. Offer letter is issued if a company makes private placement while letter of offer is issued for rights issue.

vii. Open Separate Bank Account
A company opens a separate bank account in a scheduled bank to receive the money from the applicants.

vii. Receiving Application Money
Subscribers will submit their application along with the required amount to the specified bank within the time period mentioned in the prospectus or letter of offer or offer letter.

ix. Hold Board Meeting
After the issue closes, a Board Meeting is held to decide and approve allotment of debentures. Board also approves creation of charge on the company’s assets.

x. Issue of Debenture Certificate
The allotment procedure has to be completed within 60 days from the receipt of application money. A company has to issue Debenture Certificate within 6 months of allotment of debentures.

xi. Make Entries in Register of Debenture Holders
Secretary has to make entries in the Register of Debenture holders within 7 days after the Board approval of allotment. However, if debentures are issued in demat form, the company does not maintain the Register of Debenture holders.

Question 2.
Explain the two pricing methods a company can use to offer shares to the public.
Answer:
Public issue or offer means offering the shares to the public. This is the most common method used by companies. The company invites the public to subscribe for its shares by issuing prospectus. The company can use two pricing methods to offer shares to the public. These methods can be explained as follows:

i. Fixed Price Issue Method

a. Under this method, the company states in its prospectus, the quantity and the price at which the shares are offered to the public.
b. The subscribers/ investors are asked to pay a certain portion of face value of shares or entire issue price along with the application.
c. The company comes to know the demand for its shares only after the subscription period ends. It can issue shares at par or premium.
d. Fixed price method is used for all types of issues i.e. public issue, rights issue, ESOS, etc.

ii. Book Building Method

a. Under this method, the issuer company determines the number of shares and the issue price at which its shares will be sold ‘is determined through bidding process.
b. The company issues a Red Herring Prospectus which contains a price range or price band and asks the subscribers/ investors to bid on it.
c. The lower end of the price band is called as ‘floor price’ while the highest end is called as ‘cap price’ or ‘ceiling price’.
d. The final price at which shares are offered to the investors is called as cut-off’ price.
e. Investors can bid any numbers of shares that they are willing to buy at any price within the price band. Bidding is kept open for 5 days.
f. The bids along with the application money are to be submitted to the Lead Merchant Bankers called as ’Book Runners’ who enter the bids in a book.
g. After bidding is over, the company fixes ’cut-off price’ based on the highest or best price at which all shares on offer can be sold.
h. The company issues a prospectus which contains the final price. Book building method is used for public issues i.e. IPO and FPO.

Question 3.
What is stock exchange? State the features of stock exchange.
Answer:
Stock Exchange:

Meaning

1. Stock exchange is a specif ic place where various types of securities are bought and sold.
2. The term ‘securities’ include equity shares, preference shares, debentures, government securities, bonds etc. including units of mutual funds.
3. Stock exchange is also called as secondary market or stock market or share market or share bazar.
4. Stock market acts as an intermediary between investors and borrowers.
5. In order to provide safety and stability to the investors, stock exchanges in India are regulated by SEBI.
6. London Stock Exchange which was founded in 1571 is the oldest stock exchange in the world while Bombay Stock Exchange which was founded in 1875 is the oldest stock exchange in India.

Definitions

i. Securities Contracts (Regulation) Act, 1956 defined stock exchange as, “An association, organisation or body of individuals, whether incorporated or not, established for the purpose of assisting, regulating and controlling of business in buying, selling and dealing in securities”

ii. Husband and Dockerary have defined stock exchange as, “Stock exchanges are privately organised markets which are used to facilitate trading in securities.”

Features
The important features of stock exchange are as follows:

i. Market For Securities
Stock exchange is a market where all types of corporate securities as well as securities of government and semi-government bodies are traded.

ii. Second Hand Securities
The securities traded on the stock exchange are those securities which are already issued by the companies. In other words, second hand securities are bought and sold among investors on a stock exchange.

iii. Listed Securities
Only securities that are listed with the stock exchange can be traded on a stock exchange. The companies that are listed on the stock exchange have to strictly comply with the rules laid down by the exchange. It helps in protecting the ‘ interest of investors.

iv. Organised and Regulated Market
All companies listed on the stock exchange have to comply with the guidelines of SEBI. The companies also have to function as per the rules and regulations laid down by the stock exchange. Hence, it is an organised and regulated market.

v. Specific Location
Stock exchange is a specific physical place where trading parties used to meet to trade in securities. Today, all trading is done electronically on a stock exchange.

vi. Trading Only Through Members
In a stock exchange, securities can be traded only by the members of the exchange on their own behalf or on behalf of their clients.

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

Question 1.
Working capital is necessary for the smooth functioning of the business firm.
Answer:

1. Working capital is the capital which is used to carry out day-to-day business activities.
2. A firm requires funds to store adequate raw material and finished goods in stock.
3. Firm will also have to arrange for funds if the goods are sold on credit.
4. Moreover, cash will have to be maintained to pay overheads and to meet any unexpected expenses.
5. Thus, working capital is necessary for the smooth functioning of the business.

Question 2.
ESOS is offered by a company to its permanent employees, directors and officers.
Answer:

1. Under Employee Stock Option Scheme, permanent employees, directors or officers of the company or its Holding Company or Subsidiary company are offered the benefit or right to purchase the equity shares of the company at a future date at a pre-determined price.
2. ESOS encourages employees as they feel proud to be owners of the company for which they are working and company also benefits as it can retain good employees.
3. The shares are offered at a price lesser than their market price.
4. There is a minimum vesting period of one year. Vesting period is the period during which the employee uses his option to apply for shares that have been granted to him.
5. Usually company will specify the lock-in period i.e. period during which employee cannot sell his shares. Lock-in period is minimum 1 year.
6. Shares issued under this scheme do not enjoy any dividend or voting rights till the employees buys the shares.
7. Employee cannot transfer his option to any other person nor can be pledge or mortgage the shares issued under ESOS.
8. Hence, ESOS is offered by a company to its permanent employees, directors and officers.

Question 3.
A company cannot default on the terms and conditions for acceptance of deposits.
Answer:

1. The companies accepting deposits have to comply with the provisions of:
   • Section 73 to 76 of companies Act, 2013
   • Companies (Acceptance of Deposits) Ru’es 2014 and
   • Directives issued by Reserve bank of India regarding acceptance of deposits.
     (except banking company, NBFC and housing finance company)
2. As per the Companies Act, an officer of the company who is in default for contravention of the provisions of the Act is punishable for fraud.
3. The Maharashtra Government has passed, the Maharashtra protection of Interest of Depositors (in Financial establishments) Act, 1999 to protect the interest of depositors.
4. Companies in Maharnahtra will be punished for contravening the provisions of this Act.
5. Hence, a company cannot default on the terms and conditions for acceptance of deposits.

Question 4.
Dividend is paid out of profits of the company.
Answer:

1. Shareholder invest in companys shares with aim of earning returns out of the profits of company.
2. The shareholders get dividend as a return on their investment.
3. The shareholder being the owner of the company is entitled to a share in the company’s profits.
4. Dividend is a share ¡n the distributable profits of the company.
5. Hence, dividend is paid out of the profits of the company.

As per the Companies Act, an officer of the company who is in default for contravention of the provisions of the Act is punishable for fraud.

The Maharashtra Government has passed, the Maharashtra protection of Interest of Depositors (in Financial establishments) Act, 1999 to protect the interest of depositors.

Companies in Maharashtra will be punished for contravening the provisions of this Act.

Hence, a company cannot default on the terms and conditions for acceptance of deposits.

1. Shareholders invest in company’s shares with aim of earning returns out of the profits of company.
2. The shareholders get dividend as a return on their investment.
3. The shareholder being the owner of the company is entitled to a share in the company’s profits.
4. Dividend is a share in the distributable profits of the company.
5. Hence, dividend is paid out of the profits of the company.

Question 7.
Attempt the following: (Any Two)

Question 1.
Draft a letter to depositor informing him about payment of interest through Interest Warrant.
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.: I/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: Payment of Interest on Fixed Deposit

Dear Sir,

I am instructed by the Board of Directors to inform you that the interest at 10% on your Fixed Deposit approved by the Board has become due. We are enclosing herewith ‘Interest Warrant’ No. D-123, dated 15^th May, 2020 drawn on ICICI Bank, Worli Branch for ₹ 5,000/-.

The company has complied with all the provisions relating to payment of interest on deposits.
The details of your Fixed Deposit and interest payable on deposit are given in the following schedule:

The Interest Warrant is enclosed herewith.
Please detach the Interest Warrant along the perforated line.
Thanking you,

Yours faithfully,
For Zoom Motors Ltd.

Sign
Mrs. Priya Prabhu
Company Secretary
Encl: Interest Warrant

Question 2.
Write a letter to the debenture holder regarding payment of interest electronically.
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.: IW/1010/19-20

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

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

Sub: Payment of Interest on Debentures Electronically through ECS or NEFT

Dear Sir,

I am instructed by the Board of Directors to convey to you that, the Board has passed a resolution in the Board meeting held on 18^th March, 2020 finalising to pay interest at 10% on your Redeemable debentures of ₹ 100/- each for the year ending 31^st March, 2020.

The company has complied with all the provisions relating to payment of interest on debentures.
The details of interest payable to you are as follows:

Interest will be paid by electronic transfer i.e. by crediting the said interest to your bank account, as per details provided by you to the company.

Thanking you,

Yours faithfully,
For Zoom Motors Ltd.

Sign
Mrs. Priya Prabhu
Company Secretary

Question 3.
Write a letter to the shareholder regarding issue of bonus shares.
Answer:

ZOOM MOTORS LTD.
Registered office: Plot No. 20, Commercial Towers, M. 6. Road,
Mumbai – 400001
CIN: L10020 MH 2000 PLC123456

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

Website: www.zoommotors.com
Email: [email protected]
Date: 26^th June, 2020

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

Sub: Issue of Bonus Shares

Dear Sir,
I am directed by the Board of Directors to inform you that in accordance with the resolution passed in the Extra-ordinary General Meeting of the company held on 24th June, 2020, shareholders have unanimously approved the recommendation of the Board of Directors to issue Bonus Shares. Bonus Shares are issued in the ratio of 1:1, i.e. one additional equity share for every equity share held as on record date 23^rd June, 2020.

The details of issue of Bonus Shares are as follows:

The company has complied with the provisions for the issue of Bonus Shares. The Bonus Shares issued will rank pari passu with the existing equity shares.
Thanking you,

Yours faithfully,
For Zoom Motors Ltd.

Sign
Mrs. Priya Prabhu
Company Secretary

Question 8.
Answer the following: (Any One)

Question 1.
What is Depository system? Explain its advantages.
Answer:
The securities can be held in two modes, viz. physical mode and electronic or dematerialised mode. Under depository system, securities are held in electronic form. The transfer and settlement of securities are done electronically. The depository system maintains account of the shareholder, enables transfer, collects dividend and bonus shares etc. on behalf of the shareholder. This system is also called as scripless trading system.

In the depository system, the depository is the custodian of the securities in electronic form and the Depository Participant (DP) acts as a link between the depository and the investor. Depository system is advantageous to investors as well as companies.

Advantages to Investors i. Safety

i. Safety

The depository system is the safest and most secure way of holding securities. The entire system functions under the Depositories Act and is monitored by SEBI.

E.g.: the investor can keep his account in a ‘freeze/ lock’ mode to avoid/ prevent unexpected debit or credit or both by giving instructions to the Depository Participant (DP).

ii. Updates and Intimation

The DP regularly sends a statement to the investor which provides the status of holdings and transactions. Occasionally, the depository too provides such statement.

iii. Risk Elimination

All risks associated with physical certificates such as delays, loss, theft, mutilation, bad deliveries, etc. are totally eliminated with depository system.

iv. Easy Transfer of Shares

a. The efforts that we required earlier in filing transfer forms and lodging of documents are no longer required.
b. The stamp duty levied on transfer of physical shares is not applicable.
c. Processing time in transfer of securities is reduced. Neither the securities nor the cash is held up for unnecessarily long time.

v. Facility of Nomination

The depository system allows individual investors to avail the nomination facility. In case of death of the investor, the securities are transferred to the account of the person who has been nominated by the investor.

vi. Automatic Credit

The account of investor is automatically credited/debited in case of a change initiated by the company which impacts the securities. This is called ‘Corporate Action’. Some examples of such action are payment of dividend, issue of bonus shares, offering of rights shares, early redemption of debentures, mergers and acquisitions, etc.

vii. No Concept of ’Lots’

In physical mode, it was compulsory to buy shares in certain lots i.e. lot of 10, lot of 100 etc. This system of ’lots’ has been abolished with the depository system. The market lot is one share for dematerialised securities.

viii. Security Against Loan

Banks and financial institutions provide loans against dematerialised securities as collateral (security).

Advantages to Companies

i. Up-To-bate Information
The up-to-date information about investors is provided by the depository.

ii. Reduction in Costs and Efforts
The costs, efforts and time involved in printing and distributing certificates in case of new issues, bonus, transfers, etc. is saved.

iii. Better Investor – Company Relationships
The complaints arising due to loss of certificates, signature differences, long lapses of time in executing requests, etc. are substantially reduced. It leads to better communication with investors and increased goodwill for the company.

iv. International Investment
Under depository system, better and quicker services can be provided. It attracts investments from abroad.

Question 2.
Define preference shares. What are different types of preference shares?
Answer:
Preference shares have certain preferential rights distinct from those attached to equity shares. The preference shareholders are co-owners of the company but not controllers. The types of preference shares are as follows:

i. Cumulative Preference Shares

Cumulative preference shares are those shares on which dividend goes on accumulating until it is fully paid. This means, if the dividend is not paid in one or more years due to inadequate profits, then this unpaid dividend gets accumulated. This accumulated dividend is paid when company performs well. The arrears of dividend are paid before making payment to equity shareholders. The preference shares are always cumulative unless otherwise stated in the Articles of Association. It means that if dividend is not paid any year, the unpaid amount is carried forward to the next year and so on, until all arrears have been paid.

ii. Non-Cumulative Preference Shares

The dividend on non-cumulative preference shares does not get accumulated. This means, the dividend on these shares can be paid only out of profits of that year.

The right to claim dividend will lapse, if a company does not make profit in that particular year. If dividend is not paid in any year, it is lost forever.

iii. Participating Preference Shares

The holders of participating preference shares are entitled to participate in surplus profit besides preferential dividend. The surplus profit which remains after the dividend has been paid to equity shareholders, up to certain limit, is distributed amongst these preference shareholders.

iv. Non-Participating Preference Shares

The preference shares are deemed to be non-participating, if there is no clear provision in the Articles of Association. These shareholders are entitled to fixed rate of divided prescribed at the time of issue.

v. Convertible Preference Shares

The holders of convertible preference shares have a right to convert their preference shares into equity shares. The conversion takes place within a certain fixed period.

vi. Non-Convertible Preference Shares

Non-convertible preference shares cannot be converted into equity shares.

vii. Redeemable Preference Shares

The shares which are redeemed after a certain fixed period of time are called redeemable preference shares. A company limited by shares, if authorised by Articles of Association, issues redeemable preference shares. Such shares must be fully paid. These shares are redeemed out of divisible profit only or out of fresh issue of shares made for this purpose.

viii. Irredeemable Preference Shares

The shares which are not redeemable i.e. payable only on winding up of the company are called irredeemable preference shares. As per Section 55 (1) of the Companies Act, 2013, a company cannot issue irredeemable preference shares.

Maharashtra Board Class 12 SP Previous Year Question Papers