SOLUTIONS : PRACTICE PAPER  –  5

Q.  1.  (A)

(1)  Finance is the management of monetary affairs of the company.

(2)  The gap between two calls should not be less than one month .

(3)  Company issues circular to invite its members to subscribe for its deposit

scheme.

(4)  Deposits are short-term loans of the company.

(5)  A stock exchange is where stock brokers and traders can buy and sell

securities.

Q.  1.  (B)

(1)  The 'real masters' of the company : Equity Shareholders.

(2)  Accounts to be created for redemption of debentures : Debenture Redemption

Reserve Account.

(3)  This system allows faster and easier transfer of securities : Depository

system.

(4)  The meeting where final dividend is declared : Annual General Meeting.

(5)  The first stock exchange to be recognised by the Indian Government under

the Securities Contracts Regulation Act : Bombay Stock Exchange.

Q.  1.  (C)

(1)  Finance is related to money and money management : True.
(2)  Special resolution is needed to issue convertible debentures : True.
(3)  Debentureholders are the owners of the company : False.
(4)  Dividend is paid to registered shareholders of the company : True.
(5)  Secondary market is commonly known as stock market : True.

Q.  1.  (D)

(1)  Retained earning   (2)  Right shares  (3)  Government company
(4)  Interest  (5)  Secondary Market.

SOLUTIONS TO NAVNEET PRACTICE PAPERS : STD XII (S. P.) 1

Q. 2.  (1)  Overdraft : 
Overdraft is an arrangement by which a company is allowed to overdraw i.e.
withdraw money in excess of available balance, up to a certain credit limit
sanctioned by the bank. Within this predetermined limit, any number of
withdrawals are allowed. Repayment may be made as and when cash is deposited
during the time period. Overdraft facility is given by the bank to the company
having current account. This is a kind of temporary loan on which the bank
charges interest on the actual amount overdrawn. The overdraft facility is
extended on the basis of collateral security of goods or sometimes even on the
personal security of the customer.

(2)  Sweat Equity Shares :

The shares which are issued by a company to its directors or employees at a
discount or for consideration other than cash in appreciation of their valuable
contribution to the company which has resulted in increased profits are called
Sweat Equity Shares. These shares generally have a lock-in period of 3 years.
The company is required to get approval from shareholders through a special
resolution passed in their General body meeting.
(3)  Capitalisation of Reserves :
(1)  Capitalisation of Reserve means the utilisation of profit which was kept as
reserved fund that can be used to create new shares that a company gives to its
shareholders. It refers to converting a company’s retained earnings to capital,
which represent the profits held in the business over a period of time.
(2)  The capitalisation of profits process involves issuing a stock dividend or bonus
shares to existing shareholders. It is also termed as ploughing back of profit.
Company instead of raising capital from market, raise the capital by bringing
back its profit which was kept as reserve fund.
(4)  Fungibility : 
(1)  In the context of financial terminology, fungibility means the state of being
interchangeable or substitutable. Some of the financial assets are fungible
whereas some are not e.g. land is not considered as fungible because all units
of land are not homogeneous. Each unit of land has its unique quality which
adds to or minimises its value. However, currency note is fungible. This is
because two or more currency notes of the same value are exactly similar to
each other. So, currency notes of same value are interchangeable or substitutable.
(2)  Securities issued by the company of the same class have same value though
they are owned and possessed by different persons. The securities which are
held in the dematerialised form do not have distinctive numbers for their
identification. It means the securities held in dematerialised or electronic mode
are fungible. The securities in dematerialised or electronic mode are
interchangeable, substitutable and cannot be distinguished from one another.
The demat securities do not bear silent features such as distinctive numbers,
folio number or certificate number. They are fungible.

2 NAVNEET PRACTICE PAPERS : STD. XII (COMMERCE)

 (5)  Unpaid Dividend Account :
(1)  Every company is required to open a separate account called Unpaid Dividend
Account in any one of the scheduled banks. A company has to transfer all the
amount of unpaid or unclaimed dividend to this account within 7 days from the
date of expiry of 30 days given to the company for making the payment of
dividend. In other words, the company is required to transfer the unpaid/
unclaimed dividend amount within 37 days from the date on which dividend
was declared.
(2)  After the transfer of the amount in the Unpaid Dividend Account but before the
completion of 90 days the company is required to post on its website or any
other website as specified by the Central Government a statement disclosing
therein the names, last known addresses and the unpaid amount due for
payment to each shareholder. If the claim for dividend is made by the claimant
subsequently, it should be settled from this account after careful verification.
After 7 years, the remaining amount in the Unpaid Dividend Account is required
to be transferred by the company to “Investors Education and Protection Fund”,
(IEPF).

(6)  Money Market : 

(1)  The types of market where short term funds are borrowed and lent is called
Money Market. It is a market place wherein lending and borrowing of funds are
effected for a short period ranging from one day to a year. In this market, financial
instrument have very high degree of liquidity, i.e. financial instrument can be
converted into cash easily, quickly and without any loss of money. Moreover, the
returns on investment in money market is also low.
(2)  Money market is an important segment of financial system that fulfil the short
term and very short term need of finance of the companies, banks, financial
institutions, government agencies, etc. The financial instruments which are 
close substitutes for money are traded in money market, e.g. commercial papers,
liquid and treasury bills, etc. The participants of money market comprise of RBI,
commercial banks, mutual funds, financial institutions, primary dealers,
corporates, etc. There is no fixed place to organise and carry out transactions of
money market.
Q.  3.  (1)   (a)  In my opinion, Mr. Satish should choose to invest in equity shares
issued by the company.
(b)  He receives dividend as return on the investment in shares.
(c)  As a shareholder, he has right to cast vote in proportion to his shareholdings.
By exercising voting right he can participate in the management and
affairs of the company. He is allowed to vote on all matters discussed at the
general meeting. He enjoys control over the company.

SOLUTIONS TO NAVNEET PRACTICE PAPERS : STD XII (S. P.) 3

 (2)  (a)  Apple Company Ltd. cannot raise the fund through Public Deposits as their
net worth is only ` 10 crores and to become an eligible to raise the fund
through public deposit, their networth should not be less than ` 100 crores.

(b)  No. A public company can accept deposit for the tenure of minimum 6
months to maximum of 36 months only.

(c)  Company has to issue Deposit Receipts to the depositors within 21 days
from date of receipt of money or realization of cheque.

(3)  (a)  Interim dividend cannot be paid out of free reserves.

(b)  The Board is right in declaring interim dividend at the board meeting.
Holding of general body meeting and approval of the shareholders are not
necessary to declare interim dividend. Only a resolution of the Board of
Directors is enough to declare the interim dividend.

(c)  Yes, interim dividend is required to be distributed by the company within

30 days of its declaration.
Q. 4. 

(1) Owned Capital Borrowed Capital

1. Meaning
The funds collected by a company The funds collected by a company
through issue of ownership securities through the issue of loan securities such
such as equity shares and preference as debentures, accepting public deposits
shares and ploughing back of profit are and borrowing from the banks and other
called owned capital. financial institutions are called borrowed
capital.
2.  Return on investment
The contributors to the owned capital The contributors to the borrowed
get dividend as the return on their capital get interest as the return on their
investment. Except preference shares investment. The rate of interest is fixed.
rate of dividend is fluctuating.
3.  Status of supplier
The contributors to the owned capital are The contributors to the borrowed capital
the co-owners or the joint owners of the are the creditors of the company.
company.

4 NAVNEET PRACTICE PAPERS : STD. XII (COMMERCE)

 4.  Voting Rights
The contributor to the owned capital The contributor to the borrowed capital
has a right to vote at the general has neither any right to vote at the
meetings on all the matters also has general meeting nor any privilege to
right to participate in the management participate in the management of the
of the company. company.
5.  Repayment of capital
Repayment or redemption of the owned Repayment or redemption of the
capital is made only at the time of the borrowed capital is made on the maturity
winding-up of the company. or redemption date.
6.  Charge on assets
The owned capital is raised without The borrowed capital usually raised
offering any security. The shareholders against security offered by the company.
do not have any charge on the assets of The secured debentures have charge on
the company. the assets of the company.

(2) Rights Shares Bonus Shares

1. Meaning
The rights issue refers to offering the The shares which are issued to the
shares to the existing equity shareholders existing equity shareholders free of cost,
to buy the shares of the company before out of reserve funds or accumulated
they are offered to the public. profits of the company is called Bonus
Shares.
2.  Payment
Equity shareholders have to pay for the Equity shareholders are not required to
rights shares. Only right to buy these pay for bonus shares. They are issued
shares is given to the shareholders by the by the company free of cost to the equity
company. shareholders.
3.  Partly / Fully Paid up Shares
Shareholders are required to pay for Bonus shares are issued as fully paid up
these shares as application money, shares. Hence no money is required to be
allotment, call money, etc. till the full paid by the shareholders to the company.
money on shares is paid up.

SOLUTIONS TO NAVNEET PRACTICE PAPERS : STD XII (S. P.) 5

 4.  Minimum Subscription
Company has to collect minimum There is no question of minimum
subscription. If the company fails to subscription to be collected because
collect minimum subscription within a bonus shares are issued free of cost by
specified time it has to refund the entire the company.
application money so received.
5.  Right to Renounce
The right shares can be given up by the The Bonus shares cannot be given up by
equity shareholders. the equity shareholder.
6.  Purpose of Issue
When a company desires to raise When company desires to reward its
additional funds and also wants to give existing equity shareholders, company
opportunity to their existing members to issues bonus shares from the accumulated
increase their shareholding the company huge profits and reserves.
issues right shares.

(3) Shares Debentures

1. Meaning
The smallest part or unit of the owned A specific or smallest part or unit of the
as well as rentier capital subscribed by debt capital borrowed from the public for
the public usually for a longer period is a specific period is called debenture.
called share.
2.  Nature
Capital raised by issue of shares is a Funds raised by issue of debentures is
permanent capital. It is not refunded a temporary capital. It is repaid after a
during the lifetime of the company. specific period of time.
3.  Status
A share is an ownership security. A A debenture is a creditorship security.
shareholder is the owner of the company. A debentureholder is a creditor of the
The capital raised by the company by company. The capital raised by the
issue of shares is called owned capital. company by issue of debenture is called
loan capital or borrowed capital.
4.  Voting Rights
Equity shareholders have a right to Debentureholders, being the creditors,
receive notices of general meetings, to have no right to receive notices of
vote in such meetings and to participate general meetings, no right to vote in
in the management of the company. such meetings nor to participate in the
management.

6 NAVNEET PRACTICE PAPERS : STD. XII (COMMERCE)

 5. Return on investment
The income or monetary return on The income or monetary return on
shares is called dividend. The rate of debentures is called interest. The rate of
dividend is fluctuating except in the interest is fixed irrespective of profit or
case of preference shares. loss made by the company.
6. Security
Shares are not secured against any Debentures are usually secured by
asset of the company. Share capital is creating fixed or floating charge against
unsecured capital. the assets.

(4) Money Market Capital Market

1. Meaning
Financial market where short-term Financial market where medium-term
funds are borrowed and lent is called and long term funds are borrowed and
Money Market. lent is called Capital Market.
2.  Time period
In money market, instruments bought In capital market, instruments bought
and sold have maturity period of one year and sold have maturity period of more
or less than one year. than one year.
3.  Instruments
In money market, short term instruments In capital market, long term instruments
such as commercial papers, treasury such as bonds, debentures, stocks,
bills, repurchase agreements, certificate shares, government securities, etc. are
of deposits, etc. are used for lending and used for lending and borrowing of funds.
borrowing of funds.
4.  Purpose of borrowings
From money market, funds are borrowed From capital market, funds are borrowed
by the business enterprises to meet the to set up new business, expand and
need of working capital and small and diversify the existing business or
short period investments. purchase of fixed assets.
5. Institutions
Participants functioning in money
market are central bank (RBI), Participants functioning in capital
commercial banks, non-banking, market are stock exchanges, commercial
finance companies, corporates, bill banks, non-banking, finance companies,
brokers, Central and State Government, financial intermediaries, etc.
etc.

SOLUTIONS TO NAVNEET PRACTICE PAPERS : STD XII (S. P.) 7

 6. Risk
In money market, the prices of the In capital market, instruments are of
instruments remain stable and maturity long-term and subject to market
period of instrument is less and hence fluctuations and hence in comparison
they carry low financial and market to money market, it carries very high
risk. financial and market risk.

Q. 5. 

(1)  The features of bonds are as follows :

(a) Nature of finance : Bond is a debt security. It is a debt or loan finance. 
The Bondholders provide long-term finance to the company. Usually, company
issues bonds for longer periods such as 5 years, 10 years, 25 years, 50 years, etc.
(b) Status of bondholder : The company borrows money for certain fixed period
and issues bonds as evidence of debt. Bondholder is a lender of the company.
Hence, bondholders are creditors of the company. The bondholders are not the
owners of the company. So, they cannot attend and participate in the general
meetings of the company. They do not have voting right and hence they cannot
participate in the management of the company.
(c) Return on bonds : The bondholders are entitled to receive return on their
investment in the form of interest at fixed rate. Interest on the bonds may be
either paid at regular interval or on the maturity date along with principal
amount.
(d) Repayment : A bond is a formal contract between the company and bondholder
to repay the borrowed money by the company. All bonds have maturity date.
On maturity date the repayment of principal amount along with interest (if not
paid) is made by the company to the bondholder.

(2)  Under the Employees Stock Option Scheme (ESOS), 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. The shares are offered at
a price lesser than their market price. As per the provisions of this scheme,
the employees get the right to purchase the shares of the company at the
price lower than the market price, if they purchase them within a stipulated
period. Through this voluntary scheme, a company encourages its employees
to participate in the management. ESOS is useful to those companies whose
business activity in larger proportion depends upon the talents, skills and
knowledge of employees, e.g. software companies, mechanical production,
advertising, print media, etc. The issue of the ESOS must be approved by the
shareholders through a special resolution passed in the general meeting . Once
employees are given this option to purchase the shares, they cannot further
transfer this option to anybody else.

8 NAVNEET PRACTICE PAPERS : STD. XII (COMMERCE)

 Guidelines of SEBI in respect of ESOS : 
  (1)  Formation of compensation committee.
  (2)  Approval of shareholders through special resolution.
  (3)  Issue open to all permanent employees, officers and Directors of the company.
  (4)  Restriction on transfer of option granted.
  (5)  Option granted cannot be mortgaged or hypothecated.
  (6)  On the death of employee, option is transmitted to nominee or legal heir.
  (7)  No restriction on issue of shares to single employee.
  (8)  Minimum period between grant of option and its implementation is 1 year.
  (9)  Directors’ report giving details of ESOS.
(10)  Certification by the Company’s Auditors.
(3)  The disadvantages of physical mode of holding securities are as follows :
(a) Risk : The securities in physical form can be lost, torn, damaged, stolen or
misplaced during transit, etc. These risks are associated with certificates of
papers.
(b) Efforts in duplicating : If the original certificate is lost, duplicate certificate
can be obtained from the issuer company by following lengthy procedure which
involves time, physical and mental exertion (efforts) and payment of fees, etc.
(c) Delay in allotment of securities : Allotment of securities means distribution
of all or certain number of securities to the applicants in response to the
applications. Allotment of new physical securities requires longer time.
(d) Delay in transfer and transmission of securities : In transfer and
transmission of securities, lot of time is involved in completion of time
consuming and complex procedure, checking of different documents and actual
handling of physical certificates, issue of share certificate, etc.
(e) Risk of bad delivery : The bad delivery implies delivery of certificates which
are torn, forged, mutilated, etc. This creates problems in further buying and
selling of securities.
Q. 6.  (1)
(1)  The business enterprises require finance for various purposes, at different
stages and for different period. The business firm has the following multiple
choices of sources of financing. When new company starts its business, it
raises capital through issue of equity shares. It is a basic source of financing
activities of the business. The company also issues preference shares to get
the funds only for specific period of time to the investors who are cautious
of their investment.
(2)  When company grows, it issues debts securities such as debentures and bonds,
accepts public deposits, borrows loans from banks and other financial
institutions. Large manufacturing firms raise funds by issue of equity shares
and debentures whereas trading concerns raise finance through issue of equity
shares and preference shares.
(3)  The developed company or business organisation with stable earnings can
easily raise funds by issue of debt securities and also use of retained earnings
to finance their projects. If company needs funds on regular basis, it can raise

SOLUTIONS TO NAVNEET PRACTICE PAPERS : STD XII (S. P.) 9

 funds by issue of equity shares to larger proportion. If funds are required for
short period, the company raises funds through issue of preference shares and
debentures.
(4)  Retained earnings is one of the important sources of internal financing. It is
nothing but ploughing back of profit. The company also borrows loans from
bank and other financial institutions for short-term as well as long-term. Trade
credit is the cheapest and easiest method of raising short-term finance. It is
free of cost source of financing. Selling bills of exchange to the bank for certain
amount slightly lesser than its face value is called discounting bills of exchange.
These bills are retained by the bank as security and grant short-term loans to
the business enterprises.
(2)
(1)  When a member (i.e. a registered shareholder) sells or gives his shares to
another person voluntarily, it is known as transfer of shares. Transfer of shares
is a voluntary act on the part of the shareholder.
(2)  The shares cannot be transferred by mere delivery. The transfer has to take
place in the manner as specified in the Act and the Articles which may lay down
certain restrictions in this respect. The transfer is effected by registering an
instrument called ‘Instrument of Transfer’ with the company.
(3)  The application for transfer of shares may be made in the prescribed printed
form either by the transferor or by the transferee. Such transfer instrument or
form must be signed by the transferor, transferee and a witness. Such duly filled
in form, stamped and signed must be submitted to the company’s office along
with original share certificate.
(4)  In respect of transfer of partly-paid shares, (applied by the transferor) a notice
must be given by the company to the transferee mentioning therein that the
shares to be transferred are partly paid up. If an application for transfer of partly-
paid shares is made by the transferee, such a notice is not required to be given by
the company to the transferee.
(3)
(1)  Deposit is a type of short-term loan taken by the company from the public or by
its own members. It is one of the cheapest modes of raising fund by accepting
deposits but can be risky too in case it defaults in repaying deposits.
  Following is the justification about which companies can collect deposits, the
terms and conditions to be fulfilled to collect deposits from members and public.
(2)  All companies, accept deposits, except :
i   (i) A Banking Company
 (ii) A Non-Banking Finance Company (NBFC)
(iii) A Housing Finance Company and,
(iv) Such other company as the Central Government will specify have to
comply with the provisions of (a) Sections 73 to 76 of Companies Act, 2013

10 NAVNEET PRACTICE PAPERS : STD. XII (COMMERCE)

 (b) Companies (Acceptance of Deposits) Rules 2014 and (c) Directives issued
by Reserve Bank of India regarding acceptance of deposits.
(3)   (i) Private Company : A private company can accept deposits from its
members or Directors or relatives of Directors.
 (ii) Public Company (other than eligible company) : These companies can
accept deposits from its members or Directors.
(iii) Eligible Public Company : These companies can accept deposits from
their members and also from the public.
(4)  Eligible public company means a company having :
(a)  A Net worth of not less than ` 100 crores or,
(b)  Turnover of not less than ` 500 crores and which has obtained prior approval of
its shareholders through special resolution for accepting public deposits.
(i)  Net worth     Total of paid up capital  Free Reserves  Securities Premium
Account after deducting accumulated losses deferred expenses and miscellaneous
expenses not written off.
(ii)  Turnover    Income from sales for a particular period.
(4)
(1)  The dividend which has not been paid to the shareholders or claimed by the
shareholders is called Unpaid/Unclaimed Dividend. When the dividend is not
paid to or claimed by shareholders within a period of 30 days from the date of
its declaration, the company is required to transfer the amount of unpaid or
unclaimed dividend to a separate account called Unpaid Dividend Account in
any scheduled bank within 7 days after the expiry of 30 days of declaration of
dividend, i.e. this transfer should take place within 37 days from the date of
declaration of dividend.
(2)  The company has to post on its website or any other website as suggested and
approved by the Central Government a statement which specifies names, last
known addresses and unpaid amount due for payment to each shareholders,
within 90 days of transfer of amount to Unpaid Dividend Account. Any person
to whom dividend amount is payable, may apply to the company by giving
required detail for the refund of dividend money.
(3)  If the amount of unpaid dividend remains in the unpaid dividend account for 
7 years from the date of transfer to this account, a company is required to
transfer such amount together with interest due on it to ‘‘Investors’ Education
and Protection Fund’’ (IEPF), as established by the Central Government in the
year 2001.
(4)  Any person entitled to any amount transferred to IEPF is required to make
application for refund to the authority or committee appointed by the Central
Government. On verifying the evidences or documents, if the authority or
committee is satisfied that such person is really entitled to receive refund, it
makes an order for payment of such amount due. Thus, unpaid/unclaimed
dividend amount cannot be used or appropriated by the company.

SOLUTIONS TO NAVNEET PRACTICE PAPERS : STD XII (S. P.) 11

Q. 7.  (1)  A reply letter resolving the query of the member on Low Rate of Dividend :

SHAH POLYFILMS LIMITED

Registered Office : 5/54, Trident Tower, Bandra (East),
Mumbai - 400 051.
CIN : L59439 MH 2002 PLC535522

Phone : 022-38653322 Website : www.shahpolyfilms.com

Fax : 022-38654433 E-mail : shahpolyfilms@gmail.com
Ref. No. V/RQ/435/20-21 Date : 9th May, 2021

Mr. Virat Joshi

A/5, Star Apt.,
Malad (W),
Mumbai  –  400 103.

Sub. : Resolving query on Low Rate of Dividend made by the Company.

Dear Sir,

  With reference to your letter dated 6th May, 2021 I am hereby directed to resolve
your query regarding the low rate of dividend paid by the company to their members.
The reasons for low rate of dividend are stated as follows  :

  (1)  In the last year, due to the lockdown, company’s factory located at Vadodara was
not in a condition to operate in a full fledge manner.

  (2)  On account of such unavoidable circumstances, company went through huge
financial losses due to non availability of raw material, labour and finished products
during lockdown.

  (3)  Because of such circumstances the Board of Directors has decided to transfer 
` 10 crore to General Reserves which is 30% more than the amount transferred to
reserves last year.

  Hope the reasons and the information specified above by the company will be up to
your satisfaction.

  We assure you that company will surely come over from such unavoidable
circumstances and will definitely pay higher dividend in the coming years.

Thanking you,
Yours faithfully,
For Shah Polyfilms Limited

Sign
(Mr. Gulam Akbar)
Company Secretary

12 NAVNEET PRACTICE PAPERS : STD. XII (COMMERCE)

 (2)  A letter to the debentureholder regarding payment of interest through interest
warrant :

SUMER MOBILE TOWERS LIMITED

Registered Office : Sumer Enclave,
India Technology Park,
M.G. Road, Bengaluru – 560 002.
CIN : L5443 KT 2001 PLC094351

Phone : 041-44689912 Website : www.sumermobiletowers.com

Fax : 041-4468664 E-mail : sumermobiletowers@gmail.com
Ref. R/DH/07/20-21 Date : 19th July, 2020

Mr. Nandan Patel,

Onyx Appartment,
V. P. Road, Sion,
Mumbai  –  400 022.

Sub. : Payment of interest on debentures

Dear Madam,
  This is to bring to your notice that the Board of Directors, in their Board meeting
held on 17th July, 2020 has decided and passed a resolution in respect to payment of
interest on your 300, 10% Non-convertible debentures of ` 100/- each.
  The details of payment of interest payable to you are as follows :
1 2 3 4 5 6 7
Folio No. of Distinctive Gross T. D. S. Net Amt. Interest
No. Debentures Numbers Amt. (10% On of Interest Warrant
From To of Interest Interest) (`) No.
K 300 11401 11700 ` 3,000 NIL ` 3,000 IW 533
6240
  Please find the interest warrant attached herewith. Please separate the Interest
Warrant along the perforated line.

Thanking you,
Yours faithfully,
For Sumer Mobile Towers Limited

Sign
(Mrs. Ameeta Tolani)
Company Secretary
Encl. : Interest Warrant

SOLUTIONS TO NAVNEET PRACTICE PAPERS : STD XII (S. P.) 13

 (3)  A letter to depositor informing him about payment of interest electronically :
[Payment through Electronic Mode (ECS, NEFT)] :

TRANS UREA LIMITED

Registered Office : Plot No. S/91, Thala Bhavan,
D.D. Road, Chennai  –  600 038.
CIN : L359643 TN 2000 PLC054332

Phone : 022-60603021 Website : www.transurea.com

Fax : 020-96864636 Email : transurea@gmail.com
Ref. No. NC/DEP/544/19-20 Date : 7th April, 2020

Miss Gunjan Lakhani,

7 Juhu Road,
Vile Parle (West),
Mumbai  –  400 056.

Sub. : Payment of Interest on Fixed Deposit Electronically through ECS or NEFT

Dear Madam,
  I am directed by the Board of Directors to inform you that the Board of directors
in its Board meeting held on 4th April 2020 has passed a resolution to pay interest 
@ 12% p.a. on the deposits for the year ending 31st March 2020 electronically through
ECS or NEFT.
  Your company has completed all the legal formalities relating to payment of interest
on deposits.
  The details of interest payable on your deposit is shown in the following schedule :

1 2 3 4 5 6
Fixed Deposit Rate of Gross TDS Net
Deposit Amount Interest Amount @ (10%) Amount of
Receipt No. (`) (%) of Inter- Interest 
est (`) payable (`)
W1444 ` 25,000 12% ` 3,000 NIL ` 3,000

  In the due course the amount of interest as stated above will be credited to your
bank account (ECS/NEFT) by electronic transfer as per details submitted by you to
the company.

Thanking you,
Yours faithfully,
For Trans Urea Ltd.

Sign
(Mr. Jamnalal Surti)
Company Secretary

14 NAVNEET PRACTICE PAPERS : STD. XII (COMMERCE)

Q. 8. (1)
[A] Meaning : The word ‘debenture’ is derived from the Latin word, “debere”
which means ‘to owe some thing to some one’. According to Topham, 
“A debenture is a document given by a company as evidence of debt to the holder,
usually arising out of loan, and most commonly secured by charge.” Debentures
are one of the important sources of acquiring borrowed capital to meet long-
term and the medium-term requirements of the finance. In recent years
debentures have secured a key position in the capital structure of the company.
[B]  Types of Debentures : The different types of debentures are shown in the
following chart :
Debentures

On the Basis On the Basis On the Basis On the Basis of

of Security of Transfer of Repayment Conversion

(1)  Secured and (3)  Registered and (5)  Redeemable and (7)  Convertible and
(2)  Unsecured (4)  Bearer (6)  Irredeemable (8)  Non-convertible
Debentures Debentures Debentures Debentures

The different types of debentures are explained as follows : 

1.  On the Basis of Security :
(1) Secured debentures : These debentures are secured by creating a charge on
the property of the company. The charge may be for particular property (fixed
charge) or it may be for the assets in general (floating charge). The debentures
are secured by creating trust deed.
(2) Unsecured debentures : These debentures are not covered by any charge on
any assets of the company. In recent years, the issue of unsecured debentures is
completely prohibited by the Companies Act, 2013.
2.  On the Basis of Transfer :
(1) Registered debentures : These are the debentures on which the name
of the holders is recorded. The company keeps and maintains register of
debentureholders in which the names, addresses and details of the holdings are
recorded. Registered debentures can be transferred through execution of regular
instrument of transfer.
(2) Bearer debentures : Bearer debentures are those debentures on which the
names of debentureholders are not recorded. The company does not keep
any record of the names and addresses of the holders. Bearer debentures are
transferable by mere delivery. Interest coupons are attached to these debenture
certificates to enable the holders to encash them on due dates.

SOLUTIONS TO NAVNEET PRACTICE PAPERS : STD XII (S. P.) 15

 3.  On the Basis of Repayment :
(1) Redeemable debentures : Usually, debentures are redeemed i.e. repaid at the
end of specified period as specified on the debenture certificate. The repayment
of debenture amount is made on maturity date in lump sum or in installments
during the life period of the company. Trust deed is prepared to record provisions
of repayment.
(2) Irredeemable debentures : The debentures which are not repayable during
lifetime of the company are called irredeemable debentures. These debentures
are redeemed only after the liquidation of the company or when there is breach
of any condition or some other contingencies.

4.  On the Basis of Conversion :

(1) Convertible debentures : The convertible debentures are those debentures
which give right to the holders to convert their debentures into equity shares
at a particular rate of exchange after a specific period of time. The right of
conversion is specified in the debenture certificate. The approval of the members
by special resolution in the general meeting is necessary before they are issued
to the public. These debentures are beneficial to the holders because after their
conversion they are entitled to equity shares at a rate lower than the market
value.
(2) Non-convertible debentures : These debentures are not convertible into
equity shares. These debentures are usually redeemed on their due date. For
this type of debentures there is no appreciation in value.

(2)  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. A company can use two pricing
methods to offer shares to the public.
(a) Fixed Price Issue Method : Under this method, the issue price of shares is
mentioned in the prospectus and investors have to buy shares at that price only.
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. The
exact price of shares is known in advance and it is mentioned in the prospectus.
The subscribers / investors are asked to pay a certain portion of face value of
shares or entire issue price along with the application. Company comes to know
the public demand for its shares only after closure of the issue. Application
money or entire money has to be paid by the investor at the time of submitting
his application for shares. It can be used for any issue i.e. Public Issue, Rights
Issues, ESOS, etc.

16 NAVNEET PRACTICE PAPERS : STD. XII (COMMERCE)

(b) Book Building Method : Under this method, the Board of Directors of the
company decides the number of shares and the price at which its shares will
be issued by bidding process. The company firstly have to issue a Red Herring
Prospectus which contains price range or price band and asks the investors to
bid on it. The company collects bids from the investors at various prices which
are equal to the floor price or even above floor price. The lower price of bid is
known as ‘floor price’ or ‘ask price’. Upper price of bid is known as the ‘cap price’
or ‘bid price' or the ‘ceiling price’. The final price at which shares are offered to
the investors is called as ‘cut off’ price. Investors can bid any number of shares
that they are willing to buy at any price within the price band. Bidding is kept
open for 5 days.

  After the closure of issue, all applications are scrutinised and cut off price (final
price) is decided by the company on the basis of demand and quotes received for
securities. Bids along with the application money is to be submitted to the Lead
Merchant Bankers called ‘Book Runners’ who enters the bids in a book. After bidding
is over, company fixes ‘cut off price’ based on the highest or best price at which all
shares on offer can be sold. Company issues a Prospectus which contains the final
price. Book Building Method is used for public issues i.e. IPO and FPO. Companies
Act prohibits a company to issue its shares at discount. However, it may be allowed
in certain exceptional cases like when shares are issued to its creditors, when the
debts are converted into shares under a restoration or debt restructuring scheme as
per RBI or Banking Regulation Act, 1949. A company can make public offer through
two methods as follows :

 (i) Initial Public Offer (IPO) : Initial Public Offer refers to the process of

offering shares of a company to the public for the first time. It is the process
by which a private company can go public by sale of its stocks to the general
public. Companies can raise equity capital with the help of an IPO by issuing
new shares to the public or the existing shareholders can sell their shares to the
public without raising any fresh capital.
(ii) Further Public Offer or Follow on Public Offer (FPO) : When a company
issues shares to the public after an IPO, it is called Further (Follow on) Public
Offer. Every issue of shares by a listed company after its IPO is called FPO. FPO
leads to an increase in the subscribed capital of a company.

__________

SOLUTIONS TO NAVNEET PRACTICE PAPERS : STD XII (S. P.) 17