SOLUTIONS : PRACTICE PAPER 5

Q.  1.  (A)

(a)  Financing decision – To have right amount of capital

(b)  Operation of Law – Transmission of shares

(c)  Secured deposit – Charge on tangible assets

(d)  At Board Meeting – Interim Dividends

(e)  Regulator of Capital Market – SEBI

Q.  1.  (B)

(1)  Finance is needed to pay interest to debentureholders.

(2) A company issuing secured debentures must create a charge on assets of the
company.

(3)  ISIN is a code given to the securities.

(4)  Equity shareholders are given the last priority in payment of dividend.

(5)  A stock market is an important constituents of capital market.

Q.  1.  (C)

(1) (b)  Issue prospectus
(c)  Open Bank Account
(a)  Issue Debenture Certificate

(2) (c)  Board Meeting

(a)  Board Resolution
(b)  Allotment of Debentures

(3) (b)  Acceptance of Deposits

(c)  Deposit Receipt
(a)  Renewal of Deposit

(4) (a) Investor (BO) submits application for securities to issuer company.

(c)  Issuer company gives details of allotment to Depository.
(b)  Depository intimates the DP about crediting BO’s Account.

(5) (b)  Intimate Stock Exchange of Board Meeting.

(c)  Intimate Stock Exchange of declaration of dividend.
(a)  Closure of register of members.

Q.  1.  (D)

(1) Odd word : Redemption Value

(2) Odd word : Appointment of Registrar of Companies
(3) Odd word : Face Value
(4) Odd word : Statutory Meeting
(5) Odd word : Bonus Issue

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

Q.  2. (1) Overdraft :
(1) 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.
(2) 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) Blank Transfer :
(1) When the current holder of shares signs the instrument of transfer without
filling in the name of the transferee and hands it over to the transferee along
with the share certificate, it is called Blank Transfer. It enables easy purchase
and sale of shares, as the blank transfer form can be sold any number of times.
(2) The intermediate buyers need not pay stamp duty. A holder of blank transfer
form enjoys all rights a member is entitled to have. A person borrowing money
on the security of shares may have to complete a blank transfer. This enables
the lender to get title to the shares by completing and submitting the transfer
documents to the company.
(3) Dividend Warrant :
(1) Dividend Warrant is an instrument of payment of dividend issued by the
company, to its registered shareholders, after the declaration of dividend at an
Annual General Meeting of the company. The document that holds the details
of the dividend paid to the shareholders is called a dividend warrant. It can be
thought of as a payment order by means of which the company pays its
shareholders.
(2) Company pays dividend to its shareholders in a document form known as
Dividend Warrant. It is more like a form of cheque or an instrument by which
a company pays cash (dividend) back to its investors. A dividend warrant
normally contains the information like Name of the Company, Unique Warrant
Number, Bank Details, etc. On expiry of warrant one need to fill the re-issuance
form and reissue the warrant from the company. It is normally valid for six
months just like a normal cheque.

2 NAVNEET PRACTICE PAPERS : STD. XII (COMMERCE)

 (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. 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.

(5) Dividend Mandate :

(1) If shareholder wants to get the dividend amount directly credited into his bank

account, he has to issue a dividend mandate to the company. The dividend

mandate means a letter executed by a shareholder in prescribed form, requesting

the company to pay dividend directly to the bank. Through the dividend

mandate, shareholder gives authority to the company, to pay or credit dividend

amount into shareholder’s bank account.

(2) The dividend mandate saves the time and cost of company in preparing and

sending the cheque (dividend warrant) to the residential address of the

shareholders, through registered post. It also saves effort and time of

shareholders to deposit the cheque or dividend warrant into their bank account

after filling the pay-in-slip details and await till it gets credited into their

accounts. In carrying the physical cheque chances of loss in transit cannot be

denied. The dividend mandate eliminates this risk.

(6)  Capital Market :

(1) The market where funds for long-term are borrowed and lent is called Capital

Market. In this market, long-term capital required by the business enterprises

are borrowed and lent. The financial assets, i.e. the financial instruments which

are traded in this market have long or indefinite maturity period. According to

SEBI, “Capital market is a market for long-term debt and equity shares.”

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

 (2) In this market, long-term funds in the form of debt and equity are raised through

private placement and through organised markets called stock exchanges. The

main and core function of capital market is to provide convenience (comfort) of

transactions for both the companies and investors. The financial instruments

such as equity shares, preference shares, debentures, bonds, government

securities, public deposits, etc. are traded in capital market.

Q.  3. (1) (a) Maharashtra State Road Transport Corporation, being a public utility

service provider needs less amount of working capital because of continuous

flow of cash from their customers.

(b) Maharashtra State Road Transport Corporation being a public utility

service provider needs more amount of fixed capital to acquire fixed assets.

(c) The Bombay Electricity Supply and Transport (BEST) providing electricity

and public transport services in the Brihan Mumbai is one of the public

utility service providers from whom we get electricity and transport

services.

(2) (a) Shareholders must pay as they are liable to pay the unpaid or the balance

money as and when demanded by the company.

(b) The letter sent by the company to its shareholders asking to pay ` 20 is

called as ‘Call Letter’ and the reminder for the same is called as ‘Call

Reminder’.

(c) If shareholder fails to pay the call money within the specified time, his

shares are liable to be forfeited and his name can be removed from the

register of members.

(3) (a) Star Co. Ltd. is justified to pay the dividend firstly to its preference

shareholders and then to the equity shareholders.

(b) The Annual General Meeting is necessary to get approval of the shareholders

for the dividend recommended by the Board of Directors.

(c) Star Co. Ltd. can pay dividend in cash. This is because dividend must be

paid in cash and not in kind.

4 NAVNEET PRACTICE PAPERS : STD. XII (COMMERCE)

Q.  4.

(1) Shareholders Debentureholders

1.  Meaning
The persons who buy and possess shares The persons who buy and possess
of a company are called shareholders. debentures of a company are called
debentureholders.

2.  Status

Shareholders are the joint owners of the Debentureholders are the loan creditors
company. of the company.

3.  Income

Shareholders get dividend as the return Debentureholders get interest as

on their investments in shares. the return on their investments in
debentures.

4.  Nature of Return

Shareholders get dividend at fluctuating Debentureholders get interest at a fixed

rate. The rate of dividend depends upon rate (predetermined at the time of issue
availability of disposable profit. of debentures). The payment of interest
does not depend on the profit.

5.  Rights

Equity shareholders have right to vote at Debentureholders being creditors of the

the general meetings and also have right company are the preferential claimants
to participate in the management of the over the equity shareholders and
company. unsecured creditors for refund of capital
at the time of winding-up of the company.

6.  Repayment (Refund) 

Shareholders being owners of the Debentureholders being creditors of the

company are the last claimants for the company have the preferential right
return of capital at the time of winding- over the shareholders and unsecured
up of the company. creditors for refund of capital at the time
of winding-up of the company.

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

 (2) Fixed Price Issue Book Building
1.  Meaning
The method under which the issue price The method under which the issue price
of shares is specified in the prospectus is determined by a bidding process is
and investors are required to purchase called Book Building. The investors are
the shares at that price only is called given a price band and are directed to
fixed price issue. bid at a price within the band. This way,
company concludes at a price at which it
will dispose of its shares.

2.  Price of Shares

The exact price of shares is known The price of shares is not known in
in advance and it is specified in the advance. Only the least price and highest
prospectus. price, at which the company wants to sell
the shares is known in advance.

3.  Prospectus

Company is required to issue a prospectus Company is required to issue a Red

which contains the detailed information Herring Prospectus which contains only
of the price at which shares are offered the price band and the total size of issue.
and the total number of shares offered by
the company.

4.  Determination of Demand 

Company understands the public Company understands the public

demand for its shares only after the demand for its shares everyday. The bids
closure of the issue. are noted in the book everyday till the
closure of the issue.

5.  Payment of Application Money

Application money or entire money of Only application money is required to be

the securities is required to be paid by paid at the time of bidding. Application
the investor at the time of submitting his money will be collected by the company
application for shares. only after the issue price has been fixed.

6.  When used ?

Fixed price issue may be used for any Book building is generally used in Public
issue such as Public Issue, Rights Issues, issues such as IPO and FPO.
ESOS, etc.

6 NAVNEET PRACTICE PAPERS : STD. XII (COMMERCE)

(3) Dividend Interest
1.  Meaning
The return in terms of money payable to The return in terms of money payable
the shareholders by their company for to the lenders (creditors) by the
their investment in the share capital is company such as depositholders,
called Dividend. debentureholders, banks or other
financial institutions for the loan
supplied by them to the company is
called Interest.

2.  Given to whom ?

Dividend is paid by the company to the Interest is paid by debtor to the creditor.
shareholders (members), i.e. owners of In case of company, it is paid by the
the company. company to its creditors.

3.  Obligation

Dividend is directly linked to the profits. Interest is not linked or related to the
The company pays dividend only when profits of the company. The company is
it earns profits. There is no compulsion under obligation to pay interest on the
or obligation on the company to pay borrowed funds. Interest must be paid
dividend. compulsorily.

4.  When payable ?

The company pays dividend when a Interest is required to be paid by the

company earns adequate profit in a year debtor or company every year whether it
after paying all the expenses due. earns incomes/profit or not.

5.  Rate

Except preference shares, dividend is Rate of interest is fixed and determined

paid to the equity shareholders at a at the time of borrowing or issue of debt
fluctuating rate. This is because dividend securities.
is linked to the profits of the company.

6.  Resolution

For declaration and payment of final For payment of interest no resolution is

dividend, Board resolution as well as required to be passed in any meeting of
ordinary resolution at Annual General the company.
Meeting are necessary while for interim
dividend only board resolution is
required.

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

 (4) Dematerialisation Rematerialisation
1.  Meaning
The process in which shares in the The process in which shares in an
physical form are converted into an electronic form are converted into
electronic form is called physical form is called rematerialisation
dematerialisation of shares. of shares.

2.  Conversion

Shares are converted from original Shares are converted from an electronic
physical form into an electronic/digital record again into physical form.
form.

3.  Use of form 

For dematerialisation of securities, For rematerialisation of securities,

Dematerialisation Request Form (DRF) Rematerialisation Request Form (RRF)
is used by the investors and submitted is used by the investors and sumitted to
to DP. DP.

4.  Sequence

Dematerialisation is an initial process. Rematerialisation is a reverse process.

It is primary and main function of This is a secondary and supporting
Depository. Original securities are function of Depository. Already
dematerialised. dematerialised securities are
rematerialised.

5.  Identification of securities

Demated securities do not have Remated securities are in the form of

distinctive numbers for identification. certificate. These securities are given
They are fungible i.e. interchangeable. distinctive numbers, by the issuer
company for their identification.

6.  Securities maintenance authority

The Depository is the custodian and The issuer company is the record keeping
record keeping authority of the authority of rematerialised securities.
dematerialised securities. Investor is the custodian of rematerialised
securities.

8 NAVNEET PRACTICE PAPERS : STD. XII (COMMERCE)

Q.  5. (1) Factors affecting requirement of working capital :
Nature of business

Size of business
Factors affecting
Volume of sales
requirement of
Production cycle
working capital
Business cycle

Terms of purchase and sale

(1)  Nature of business : The nature of business have great impact on the

requirement of working capital. Manufacturing and industrial enterprises
engaged in manufacturing essential products of day-to-day consumption would
require relatively less amount of working capital. This is because there is
continuous and adequate cash inflow in the enterprises to take care of liabilities.
Similarly public utility concerns providing services such as transport, gas,
electricity, etc. need less working capital due to continuous inflow of cash from
their customers. Business enterprises engaged in selling and distribution of
luxurious products need huge amount of working capital. This is due to lack of
regular and continuous sale. The trading or merchandising firm engaged in the
distribution of goods need huge amount of working capital because they need
to keep big inventories (stock in trade) to fulfill customers’ demand.

(2)  Size of business : A business enterprises with large scale operation will need
large amount of working capital. However, the need of working capital of
business operated on small scale and at local level is comparatively very less.

(3)  Volume of sales : The requirement of working capital directly varies with the
volume of sales. If the volume of sales increases there is corresponding increase
in the requirement of working capital and vice versa.
(4)  Production cycle : Production cycle (i.e. gestation period) refers to the process
of conversion of raw materials into finished products. If the production cycle
period is longer, the firm requires more working capital. Conversely, if the
production cycle period is short, the firm needs less working capital.
(5)  Business cycle : During boom (i.e. prosperity), demand and sales for goods and
services will increase which in turn will increase the requirement of working
capital. Conversely, during recession period, the demand and sales for goods
and services will decline and consequently the requirement of working capital
will also decrease.

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

 (6)  Terms of purchase and sale : If business enterprise does not get proper credit
from the suppliers and adopts liberal credit policy for sales, then requirement
of cash will be more which in turn will increase the need of working capital.
Conversely, if a business enterprise gets adequate or more period of time for
making payment to suppliers and adopts less liberal credit policy for sale, then
requirement of cash will be less which in turn will reduce the need of working
capital.
(2) The provisions for issue of Debentures as per Companies Act, 2013 are shown in
the following chart :

Provisions for issue of Debentures

1.  No voting rights
2.  Types of debentures
3.  Payment of interest and redemption
4.  Debenture Certificate
5.  Create Debenture Redemption Reserve
6.  Appointment of Debenture Trustees

Following are some of the provisions of the Companies Act, 2013 which a
company has to comply while issuing debentures :
(1)  No voting rights : A company cannot issue debentures with voting rights.
Debentureholders are the creditors of the company and hence, they do not have
any voting right except on the matters which can affect their interests.
(2)  Types of debentures : A company can issue secured or unsecured debentures
and fully or partly convertible debentures or non-convertible debentures. For
issuing convertible debentures, a special resolution must be passed in the Annual
General Meeting of the shareholders. All debentures are redeemable.
(3) Payment of interest and redemption : As per the terms and conditions
written in the prospectus, company is required to redeem the debentures and
pay interest.
(4)  Debenture Certificate : Debentureholder shall get the debenture certificate
within 6 months of allotment of debentures.
(5) Create Debenture Redemption Reserve : Debenture Redemption Reserve
account has to be created out of profits of the company. As per the Companies
Amendment Rules, 2019, MCA has removed this requirement for listed companies,
NBFCs and Housing Finance Companies. This money has to be used only for
redemption of debentures.

10 NAVNEET PRACTICE PAPERS : STD. XII (COMMERCE)

 (6)  Appointment of Debenture Trustees : If company issues prospectus or invites
more than 500 people, company has to appoint one or more Debenture Trustees
to protect the interest of debentureholders.
(3) The depository is an organisation or institution similar to the Central Bank
where investors’ securities are held in electronic form at their request. It offers
variety of services in respect to different transactions in those securities such
as purchase, sale, transfer of securities, etc. It acts as a custodian of securities
and held responsible for safe keeping of the investors’ securities. The depository
cannot deal directly with investors. Investors have no direct access with the
Depository. It functions as a link between company and investors through
Depository Participant (DP).
In India, at present, there are two depositories : (i)  National Securities
Depository Limited (NSDL) and (ii)  Central Depository Services Limited
(CDSL). They are required to be registered with SEBI under the SEBI Act, 1992
and must obtain certificate of commencement of business from SEBI. They must
be registered as a company under the Companies Act, 2013. The depository
should have bye-laws previously approved by SEBI. They offer depository
services through one or more Depository Participants. Depository should have
been set up by one or more of  : public financial institution, bank, foreign bank,
recognised stock exchange, a body corporate providing financial services, a body
corporate and institution providing financial services established in foreign
country and approved by the Central Government. For transfer of securities
on behalf of investors (Beneficial Owner), depository is deemed to be registered
owner of securities. The depository works within the legal framework of SEBI
Act, 1992, SEBI Regulations 2012, Bye-laws of Depository and the Companies Act,
2013.
Q.  6. (1)
(1) Fixed capital refers to that part of the total capital which is invested or used for
purchasing fixed assets such as land and building, plant and machinery,
furniture and fixtures, motor vehicle, etc. These fixed assets are used in the
company for a longer period of time. These assets are not meant for resale. In
other words, fixed capital implies capital invested for acquiring fixed assets.
(2) Fixed capital remains in the business for a long period of time i.e. almost
permanently. It refers to the stock of tangible and durable fixed assets owned
or used. Fixed capital is needed at the time of establishment of new company.
Fixed capital is also required for expansion and development of business and
for purchasing equipment which are used in the business for a long period of
time.

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

 (3) The big business enterprises such as railways, road transport and other utility
services invest huge sum in fixed assets. The general rule states that bigger the
size of business, higher the need of fixed capital. Newly established organisation
needs more investments in fixed assets than that required by the established
business firm.
(2) A company has to create charge on its assets for issuing secured debentures
and which can be justified with the following points :
(1) All secured debentures should be redeemed within 10 years from the date of its
issue. Company has to create a charge on the assets of the company or its
subsidiary company or holding company.
(2) The value of charge should be adequate to cover the entire value of debentures
issued and interest to be paid on it. If a Government company issues secured
debentures which has Central or State Government’s guarantee, then it need
not create any charge on its assets.
(3) All secured debentures have to be secured by the assets of the company. In
simple words, assets of the company are mortgaged or used as a collateral
security to issue secured debentures.
(4) The company has to make entries in respect to the assets on which charges are
created in the Register of charges.
(3)
(1) If the original share certificate is lost, mutilated, defaced, surrendered to the
company or torn, the company can issue duplicate share certificate, if applied
by the shareholder for duplicate share certificate. For obtaining duplicate share
certificate from the company, the holder has to prove that share certificate is
lost or destroyed.
(2) In case of loss of share certificate, the company is required to give notice in the
newspapers to declare about loss of share certificate and the finder if any is
asked to return it to the company. If no response is received from the public
within the specified time limit, the company is allowed to issue a duplicate
share certificate.
(3) The company is required to issue duplicate share certificate within 3 months
from the date of application received from its holder. The company issues
duplicate share certificate only to the registered shareholders. The words
“Duplicate Share Certificate” should be printed in bold letters on the duplicate
share certificate to understand that it is duplicate share certificate.

12 NAVNEET PRACTICE PAPERS : STD. XII (COMMERCE)

 (4) If the company issues duplicate share certificate with prime motive to defraud,
it has to pay heavy penalty.
(4) The main participants of money market are explained as follows :

(1) The Reserve Bank of India through money market regulates and controls money

supply and implements its monetary policy. It is the main and most important

participant in the money market. The RBI is the leader of banking sector and

money market. It issues the government securities, including bonds on behalf

of the government and also gives guarantee to sell those government securities.

It carries out the functions of an intermediary and regulator of the money

market.

(2)  The Central Government borrows money from the money market, through the

issue of Treasury Bills (T-Bills). The T-Bills are issued through the Reserve

Bank of India (RBI). T-Bills are zero risk instruments. On account of zero risk,

T-Bills are purchased by banks, corporates, etc. and lend sizeable amount to

the government as a part of short-term borrowing programme. The state

governments issue bonds known as state development loans.

(3)  The government company whose shares and other securities are listed on one

or more stock exchanges is called listed government company. Most of the listed

government companies issue commercial papers to collect the funds to meet the

requirement of working capital.

(4)  Most of the scheduled Commercial Banks borrow as well as lend money in the

money market. They are very big participant, i.e. borrowers and lenders in the

money market. These banks borrow and lend money in call money market,

short notice market, repo and reserve repo market.

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

Q.  7. (1) A letter to the member informing him/her about the payment of dividend
through dividend warrant :

TRUMPH INDUSTRIES LIMITED

Registered Office : 113, Apex Tower, J.M. Road,
Fort, Mumbai – 400 001.
CIN : L41519 MH 1002 PLC221956.

Phone : 022-97675877 Website : www.trumph.com

Fax : 022-30010331 E-mail : trumph@gmail.com
Ref. No. W/LR-N/7/22-23 Date : 24th June, 2022

Mrs. Jemima Surve,

A105, Delta Bunglow,
P. K. Marg, Wadala,
Mumbai  –  400 042.

Sub.: Payment of Dividend on Equity Shares 

(Equity Shares of ` 10 each at par)

Dear Madam,
As instructed by the Board of Directors, I am hereby informing you that in
the 21st Annual General Meeting held on 20th June, 2022, the final dividend
@ ` 3.5 per equity share of ` 10 each has been approved by the members for the
year ending 31st March, 2022. The company has completed all the legal formalities
as per the provisions made under Section 123 of the Companies Act, 2013, relating
to declaration of dividend.

The details of dividend payable to you is given in the following schedule :

1 2 3 4 5 6 7
Register No. of Distinctive Dividend Gross Income Tax Net
Folio No. Shares Numbers Warrant Dividend Deducted Dividend
held From To No. (`) (TDS) (`)
CA-30 200 2451 2650 BD-9132 ` 700 NIL ` 700

The ‘Dividend Warrant’ is enclosed herewith. Please detach the ‘Dividend

Warrant’ along the perforated line.

Thanking you,

Yours faithfully,
For Trumph Industries Limited

Sign
(Mr. Anand Kelkar)
Company Secretary
Encl. : Dividend Warrant

14 NAVNEET PRACTICE PAPERS : STD. XII (COMMERCE)

 (2) A letter to debentureholder informing him/her about allotment of debentures :

JUGNU GLASS LIMITED

Registered Office : C / 33, Ekvira Tower,
M.M.M. Road, Nashik  –  422 003.
CIN : L67003MH 2000PLC504734

Phone : 234-56774778 Website : www.jugnuglass.com

Fax : 234-56774353 E-mail : jugnuglass@gmail.com
Ref. R/RD/WD/22-23 Date : 10th May, 2022

Mr. Chetan Parkar,

Flat no. 22, Ashok Complex,
Bapat Marg, Dadar,
Mumbai  –  400 025.

Sub. : Allotment of Debentures
Dear Sir,
I am pleased to inform you that with regard to your application No. WK - 79574
dated 27th April, 2022, you have been allotted 250, 10% Non-convertible secured
debentures of ` 100 each. The maturity period of debentures is for 7 years.
These debentures are allotted to you by the company as per Board Resolution
passed at Board Meeting held on 7th May, 2022 and in accordance with and as per
terms and conditions of Debenture Trust Deed and Articles of Association of the
company.
The Details of Allotment of Debentures are shown in the following schedule :

1 2 3 4 5
No. of No. of Distinctive
Amount
Folio No. Debentures Debentures Numbers
Received (`)
Applied Allotted From To
WK79574 250 250 23351 23600 ` 25,000

The Debenture Certificate is attached with this letter.

Thanking you,
Yours faithfully,
For Jugnu Glass Limited

Sign
(Mr. Nishikant Sahu)
Company Secretary
Encl. : Debenture Certificate.

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

 (3) A letter to depositor regarding repayment of his Deposit :

GOLI FOODS LIMITED

RRegistered Office : 4, Sonata Compound,
Pimpri Road, Pune  –  411 018.
CIN : L6566 MH 2003 PLC435566

Phone : 022-64575788 Website : golifood.com

Fax : 020-645754435 E-mail : golifood@gmail.com
Ref. No. S/D/1533/22-23 Date : 6th December, 2022

Mrs. Rashmi Kamraj,

105, Sapna Apartment,
Pune  –  411 030.

Sub. : Repayment of Fixed Deposit

Dear Madam,
In the financial year 2019-20 on 12th December 2019, you had deposited ` 50,000
for a period of 3 years with our company. As per the terms of issue of deposits,
the period of the said deposit will expire on 11th December, 2022. The Board of
Directors in its Board Meeting held on 1st December, 2022 has passed a resolution
for the redemption of the deposit. The duly discharged Deposit Receipt, you have
sent along with your request letter is in the custody of the company.
The details of repayment of deposit are shown in the following schedule :
1 2 3 4 5 6 7 8
Tenure of Fixed Deposit Deposit Rate of Int. Maturity TDS Net Due Date of

Deposit Receipt. No. Amt. (`) (10%) p.a. Amt. (`) (10%) Amt. Deposit

3 years 5532 ` 50,000 ` 5,000 ` 65,000 ` 6,500 ` 58,500 11th Dec., 2022

As per the terms of issue, we are sending herewith a crossed cheque of ` 58,500,
bearing No. 444432 dated 11th December, 2022 drawn on Bank of India, Bale Wadi,
Pune  –  411 005. Kindly acknowledge the same.

The Board of Directors has expressed its sincere thanks for providing substan-
tial amount to our company. The company will be glad to accept deposit of a sub-
stantial amount from you in future also.

Thanking you,
Yours faithfully,
For Goli Foods Ltd.

Sign
(Mr. Avin Bhasin)
Company Secretary
Encl. : Cheque No. 444432

16 NAVNEET PRACTICE PAPERS : STD. XII (COMMERCE)

Q.  8. (1) [A] Definition : The Preference Shares are those shares which carry certain

preferential rights distinct from the rights of equity shareholders with

regard to (i)  receive dividend at a fixed rate during the life-time of the

company and (ii)  a preferential right as to receive the entire amount of

capital at the time of winding-up (closure) of the company. It means

preference shareholders are paid dividend before it is paid to the equity

shareholders. Similarly, in the case of the winding-up of the company,

preference share capital is refunded first.

[B] Types of Preference Shares : The different types of preference shares are

shown in the following chart :

Cumulative and  
Non-cumulative Preference Shares

Participating and Non-participating

Types of Preference Shares
Preference
Shares Convertible and Non-convertible
Preference Shares

Redeemable and Irredeemable

Preference Shares

The different types of preference shares are explained as follows :

(1)  Cumulative Preference Shares : Cumulative Preference Shares are those

shares which have the right to claim a fixed dividend of the current year (if

not paid) out of future profits. The dividend in their case goes on accumulating

unless it is paid. If the company is unable to earn sufficient profits in any year,

the unpaid dividend shall be paid from the profit of the subsequent years. The

accumulated arrears of dividend become payable before anything is paid out of

profits to the holders of any other class of shares. Preference shares are always

cumulative unless otherwise stated in the Articles of Association.

(2) Non-cumulative Preference Shares : Non-cumulative preference shares are

those shares in which shareholders get dividend only when the company earns

profit. Dividend if not paid by the company in any year due to inadequate profit

or loss, it does not accumulate. In such case, right to claim dividend lapses.

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

 (3) Participating Preference Shares : Participating preference shareholders
have the normal right to get fixed dividend as well as have the additional right
to participate (receive additional amount)  in the surplus profits left after paying
dividend to equity shareholders up to a certain limit.
(4)  Non-participating Preference Shares : Non-participating preference
shareholders are entitled to get only dividend at fixed rate prescribed at the time
of issue. If the Articles of Association is silent about this issue, then it is implied
that the preference shares are non-participating.
(5)  Convertible Preference Shares : Convertible preference shares are those
preference shares in which holders have a right to convert their preference
shares into equity shares. The conversion may take place within a certain fixed
period.
(6) Non-convertible Preference Shares : Preference shares which cannot be
converted into equity shares are called non-convertible preference shares.
(7) Redeemable Preference Shares : Preference shares which are redeemed after
specific or certain fixed period of time are called redeemable preference shares.
A company limited by shares, if authorised by the Articles of Association, can
issue redeemable preference shares. Such shares must be fully paid either out of
distributable (divisible) profit or out of fresh issue of shares made specifically for
redemption of preference shares.
(8) Irredeemable Preference Shares : Irredeemable preference shares cannot
be paid back during the existence of the company. They are paid back only in
the event of winding-up of the company. However, as per Section 55 (1) of the
Companies Act, 2013, the issue of irredeemable preference shares is not permitted.
(2) The procedure for issue of debentures is shown in the following chart :

Procedure for Issue of Debentures

  1. Pass resolution in the Board Meeting
  2. Hold Extraordinary General Meeting (E.G.M.)
  3. Filing with Registrar of the Companies (ROC)
  4.  Obtain credit rating
  5. Enter into an underwriting agreement
  6. Issue prospectus / offer letter / letter of offer
  7.  Open separate bank account
  8.  Receiving application money
  9.  Hold Board Meeting
10.  Issue of debenture certificate
11. Make entries in the register of debentureholders

18 NAVNEET PRACTICE PAPERS : STD. XII (COMMERCE)

 Following is the procedure to be followed by a company issuing debentures :
(1) Pass resolution in Board Meeting : Company has to call a Board Meeting to
pass the resolutions like
  (i) amount and type of debentures to be issued and the terms and conditions
for issue.
 (ii)  approve prospectus or offer letter.
  (iii) approve appointment of Debenture Trustees and get their written consent.
 (iv) authorise the Board to create charge on assets of the company.
 (v) to call an Extraordinary General Meeting if the Board’s borrowing powers
are required to be increased.
  (vi) authorise the Board, to open a separate bank account for receiving money
from applicants.

(2) Hold an Extraordinary General Meeting (EGM) : Board of Directors'

borrowing powers can be increased by holding an EGM, to get the shareholders’
approval, through a Special Resolution. Shareholders will have to give their
approval with 75% majority to the resolution of raising debenture capital.
(3) Filing with Registrar of Companies  : Secretary is required to file a copy of
Special Resolution, copy of Prospectus and offer letter with Registrar of
Companies. The Secretary will have to complete the filing of registration, within
30 days of resolution passed.
(4) Obtain credit rating : Company Secretary has to make the arrangement, to
gets its debentures rated by one or more reputed Credit Rating Agencies. The
Secretary will also have to ensure, that the ratings must be mentioned in the
prospectus / offer letter / letter of offer.
(5)  Enter into an underwriting agreement : To ensure the collection of required
debt capital through issue of debentures, Company makes entries into an
underwriting agreement which gives a guarantee of minimum subscription by
charging a commission for underwriting its debenture issue.
(6) Issue Prospectus / Offer Letter / Letter of Offer : Company has to issue
prospectus, if it invites the public to buy its debentures. Offer letter is issued if
a company goes for private placement and letter of offer for rights issue.
(7) Open separate bank account : Company has to open a separate bank account
in a scheduled bank to collect the application money from the debenture
applicants.
(8)  Receiving application money : Company receives the application money
with application from subscribers through the specified bank within the time
period specified in the prospectus or letter of offer / offer letter.

SOLUTIONS TO NAVNEET PRACTICE PAPERS : STD XII (S. P.) 19

 (9) Hold Board Meeting : A Board Meeting is held to decide and approve allotment
of debentures. Board also gives approval for creation of charges on the company’s
assets.
(10) Issue of debenture certificate : The company is required to complete
allotment of debenture procedure within 60 days from the receipt of application
money. Company has to issue debenture certificate within 6 months of allotment
of debentures.
(11)  Make entries in the register of debentureholders : Secretary has to make
entries in the register of debentureholders, within 7 days after the Board’s
approval of allotment. However, if the debentures are issued by the company
in dematerialised form, then it need not require to maintain the register of
debentureholders.

__________

20 NAVNEET PRACTICE PAPERS : STD. XII (COMMERCE)