SECRETARIAL PRACTICE

SOLUTIONS : PRACTICE PAPER 5

Q. 1. (A)
(1) (b) current assets
(2) (a) NSE
(3) (a) 5
(4) (b) Interest
(5) (b) 10 years
Q. 1. (B)
(1) increase
(2) shareholders
(3) uncalled capital
(4) Credit Rating Agency
(5) depository
Q. 1. (C)
(1) Dividend warrant
(2) Redemption value
(3) Debenture redemption reserve account
(4) Debenture trustees
(5) Dividend mandate
Q. 1. (D)
(1) (a) Obtain credit rating (c) Receive application with money (b) Entry in Register
of Debenture
(2) (b) Acceptance of deposits (c) Deposit receipt (a) Renewal of deposit
(3) (b) Application form (c) Minimum subscription (a) Return of allotment.
(4) (b) Open Demat Account (c) Submit DRF (a) Gets Statement of Accounts.
(5) (a) Decision on rate of dividend (c) Payment of dividend (b) Transfer to IEPF.
Q. 2. (1) Initial Public Offer :
(1) Initial Public Offer (IPO) refers to the process of offering shares of a company to
the public for the first time. Initial public offering is the process by which a private
company can go public by sale of its stocks to general public.
(2) Companies can raise equity capital with the help of an IPO by issuing new shares to
the public or the existing private investors can sell their shares to the public, without
raising any fresh capital.

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

 (2) Eligible public company :
(1) 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.
(2) Eligible public company cannot accept fresh deposits from its members, if the amount
of such deposits together with the previous deposits exceeds 10% of aggregate of
paid-up share capital and free reserves. Eligible public company cannot accept fresh
deposits from public, if the amount of such deposits together with the previous
deposits exceeds 25% of aggregate of paid-up share capital and free reserves.
(3) Forged transfer :
(1) Forgery means an action of creating a false document or of illicitly amending an
existing one. Forged transfer refers to transfer where the signature of the transferor
is forged. Company should not register such transfer of shares.
(2) A forged transfer is null and void and therefore, no ownership of shares can be
transferred if signature of transferor is found as forged. In case of forged transfer, the
original owner of those shares can apply to the company and get his name restored
on register of members.
(4) Final dividend :
(1) Dividend which is declared at the Annual General Meeting of the company is
called final dividend. It is also known as Annual dividend. The final dividend is
declared after the conclusion of the financial year. The rate of final dividend is
recommended by the Board of Directors after considering the factors such as
income tax to be paid, reserves to be created, total amount of divisible net profit,
provision for depreciation, etc.
(2) Final dividend is declared by the shareholders, by passing an Ordinary Resolution
in the Annual General Meeting. The shareholders cannot increase the rate of
dividend while approving final dividend. However, they can reduce the rate of
dividend recommended by the Board of Directors. The final dividend must be paid
within 30 days from the date of its declaration.

(5) Debenture trustee :

(1) Companies which issue secured debentures or offer debentures to general public
(more than 500 people) are required to appoint Debenture Trustees. Debenture
Trustees are institutions which safeguard the interest of the debentureholders.
The company creates a charge on its movable or immovable assets or assets of its
subsidiary company or holding company in favour of the Debenture Trustees.
(2) Debenture Trustees are appointed by the company, before prospectus or letter of

2 NAVNEET PRACTICE PAPERS : STD. XII (COMMERCE)

 offer/offer letter is issued. Debenture Trustees have to redress the complaints of
debentureholders, if the company defaults in making payment of debentures.
Trustees can approach the NCLT (National Company Law Tribunal) who can order
a defaulting company to repay the principal amount or interest.
(6) Bombay Stock Exchange (BSE) :
(1) The Bombay Stock Exchange (BSE) which was founded in 1875 is the oldest stock
exchange in India. In those days ‘BSE’ was recognised as “The Native Share and
Stock Brokers’ Association”. It is situated at Dalal Street in Mumbai. It is also known
as Asia’s first stock exchange and the first listed stock exchange in India. In terms
of market capitalisation, it is ranked 11th largest stock exchange in the world. It has
largest number of companies (approximately over 5000 companies) listed on it. It
is now converted into a public limited company and became a corporatised entity
registered under the Companies Act, 1956.
(2) The BSE switched to an electronic trading system, i.e. computerised system in
1995. This automated, screen-based trading platform is referred to as BOLT, i.e.
BSE On-Line Trading. The BSE has also implemented a centralised exchange
based internet trading system. The [Link] helps the investors anywhere in
the world to trade on its platform.
.Q. 3. (1) (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.
(2) (a) A Donald Company is financially sound. This is because retained earnings are
double of equity share capital.
(b) The retained earnings can be converted into share capital by issuing bonus
shares to equity shareholders in specific proportion of their holdings.
(c) Retained earnings is an internal source of raising long-term finance.
(3) (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 Brihanmumbai Electricity Supply and Transport (BEST) is one of the public
utility service providers from whom we get electricity and transport services.

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

Q. 4. (1) Shares and Debentures :

Shares Debentures
1. Meaning
The smallest part or unit of the share capital A debenture is an instrument given by
subscribed by the public usually for a longer the company under its common seal, as
period is called share. evidence of indebtedness.
2. Nature
Capital raised by issue of equity shares is a Capital raised by issue of debentures is
permanent capital. It is not refunded during a temporary capital. It is repaid after a
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
company.
4. Voting Rights
Equity shareholders have a right to receive Debentureholders have no right to receive
notices of general meetings, to vote in notices of general meetings, no right to vote
such meetings and to participate in the in such meetings nor to participate in the
management of the company. management.
5. Return on investment
The income or monetary return on shares The income or monetary return on
is called dividend. The rate of dividend is debentures is called interest. The rate of
fluctuating, except in the case of preference interest is fixed irrespective of profit or loss
shares. made by the company.
6. Security
Shares are not secured against any asset of Debentures are usually secured by creating
the company. Share capital is unsecured fixed or floating charge against the assets of
capital. the company.

(2) Rights shares and Bonus shares :

Rights Shares Bonus Shares

1. Meaning
Rights issue refers to offering the shares The shares which are issued to the existing
to the existing equity shareholders to buy equity shareholders free of cost, out of
before they are offered to the public. reserve funds or accumulated profits of the
company are 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 shares pay for bonus shares. They are issued by
is given to the shareholders by the company. the company free of cost to the equity
shareholders.

4 NAVNEET PRACTICE PAPERS : STD. XII (COMMERCE)

 3. Partly / Fully Paid-up Shares
Shareholders are required to pay for these Bonus shares are issued as fully paid-up
shares as application money, allotment, call shares. Hence, no money is required to be
money, etc. till the full money on shares is paid by the shareholders to the company.
paid-up.
4. Minimum Subscription
Company has to collect minimum There is no question of minimum
subscription. If the company fails to collect subscription to be collected because
minimum subscription within a specified bonus shares are issued free of cost by the
time, it has to refund the entire application company.
money so received.
5. Right to Renounce
The rights shares can be given up by the The bonus shares cannot be given up by the
equity shareholders. equity shareholders.
6. Purpose of Issue
When a company desires to raise additional When a company desires to reward its
funds and also wants to give opportunity existing equity shareholders, company
to their existing members to increase their issues bonus shares from the accumulated
shareholding, the company issues rights huge profits and reserves.
shares.

(3) Fixed capital and Working capital :

Fixed Capital Working Capital

1. Meaning
Fixed capital refers to that portion of total Working capital refers to the firm’s
capital which is invested in fixed assets investments in short-term assets viz. cash,
such as land, building, equipment, etc. short-term securities, account receivable
and payable as well as inventories, etc.
2. Nature
Fixed capital remains in the business for a Working capital remains in the business
long period of time i.e. for more than one for a short period of time and circulates
year. into the business.
3. Purpose
Amount of fixed capital is employed into Amount of working capital is employed
the fixed assets such as land, building, into the short-term assets such as
machinery, equipment, etc. inventories, cash, account receivables, etc.

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

 4. Sources
Fixed capital is funded through different Working capital is funded from different
sources such as issue of shares, debentures, sources such as borrowing short-term
bonds and borrowing long-term loans loans, accepting public deposits, trade
from financial institutions. credit, etc.
5. Objectives
Investors invest the funds in fixed capital Investors invest their funds in working
to earn future profits. capital to get immediate returns.
6. Risks involved
Investments made in fixed capital is more Investments made in working capital is
risky. comparatively less risky.

(4) Primary market and Secondary market :

Primary Market Secondary Market

1. Meaning
A security market in which new issues of A security market in which existing
securities i.e., new shares and debentures securities are purchased and sold repeatedly
are arranged and organised is called is called secondary market.
primary market.
2. Mode of investment
In the primary market, direct investment is In the secondary market, indirect
made. Securities are obtained directly investment is made. Securities are obtained
from the issuer company. from other stakeholders.
3. Parties in action
Two parties involved in the primary Parties involved in the secondary market
market are (i) company and (ii) investors. are only investors.
4. Intermediary
In the primary market, underwriters act as In the secondary market, brokers act as
intermediaries. intermediaries.
5. Value of security
In the primary market, the price of the In the secondary market, the price of the
security is fixed as it is determined by the security is fluctuating as it is determined
company. by the changing forces of demand and
supply of security in the market.
6. Other name
Primary market is also called new issue Secondary market is also called stock
market. market.

6 NAVNEET PRACTICE PAPERS : STD. XII (COMMERCE)

Q. 5. (1) The effects of forfeiture of shares are stated as follows :
(1) Cessation of membership : On forfeiture, a member ceases to be member of
a company and loses all membership rights. The member’s name is removed
from the Register of Members.
(2) Liability of member : A member is liable for unpaid calls even after forfeiture
of shares. The liability ceases only when the company reissues the forfeited
shares.
(3) Liquidation of company : If a company goes in for liquidation within one
year of forfeiture of shares, the member whose shares have been forfeited is
liable to pay the calls as a past member.
(4) Reissue of forfeiture shares : The company can reissue the forfeited shares
to the other members or any other person. A company is under obligation to
pay the excess amount to the concerned member, if it receives more amount on
reissue of share.
(2) The disadvantages of physical mode of holding securities are as follows :
(1) Risks : The securities in physical form can be lost, torn, damaged, stolen or
misplaced during transit, etc.
(2) 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.
(3) 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.
(4) Delay in transfer and transmission of securities : In transfer and
transmission of securities, lot of time is spent in completion of time-consuming
and complex procedure, checking of different documents and actual handling
of physical certificates, issue of share certificate, etc.
(5) 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.
(Write any 4 points with explanation.)
(3) The financial instruments which are immediate substitute for money are bought
and sold in the money market. These instruments are as follows :
(1) Call Money and Notice Money : Call money market and notice money market
are the important section (part) of the money market in India. Funds or money
which are lent or borrowed for very short period one day are referred to as call
money. Funds or money which are borrowed and lent for a period between
2 days to 14 days are called notice money. Borrowed funds are required to be
SOLUTIONS TO NAVNEET PRACTICE PAPERS : STD XII (S. P.) 7
 repaid within a stated period of time on the receipt of notice given by the lender.
Sometimes a bank which runs temporary shortage of funds, approaches another
bank with surplus cash to lend cash to it. For this reason, notice/call money
market is also called as interbank call money market.
(2) Treasury Bills (T-Bills) : Treasury bills (T-Bills) are the shortterm money
market instruments (securities) issued by the Reserve Bank of India on behalf
of the central government of India to fulfill the shortterm funds requirement of
the government. They are issued with guaranteed repayment by the government
at later date. The treasury bills have different maturity periods viz. 91 days, 182
days and 364 days. In order to collect required amount of funds, the Reserve
Bank of India sells treasury bills to the banks, individuals, firms, institutions, etc.
They are the negotiable instrument and freely transferable from one individual
to another. The treasury bills are issued for minimum value of ` 25,000 and
further in multiples of ` 25,000. They are called Zero Coupon Bonds because
they are issued at discount and repaid at par.
(3) Trade Bills/Commercial Bills : The bill of exchange is also called as trade bill
or commercial bill. These bills are negotiable instrument and freely (easily)
transferable from one person to another. These bills are drawn by the seller or
creditor on the buyer or debtor, for the value of goods sold on credit. These
bills usually have short-term maturity period of 90 days. If seller or holder
of the bill is in urgent need of money, he can discount the trade bill with any
commercial bank. Discounting of the trade bill with bank means selling the
bill to the bank for certain cash, which is slightly lower than its face value. The
bank can rediscount the bills any number of times till the maturity of the bill.
On the maturity, the amount of the bill is paid to the bank by the borrower.
(4) Commercial Papers (CPs) : The commercial papers are unsecured debts
instruments issued in the form of promissory notes by the highly rated companies,
All India Financial Institutions such as Small Industries Development Bank of
India (SIDBI), Export-Import Bank of India (Exim) bank, etc. and primary
dealers can also issue commercial papers with a fixed maturity period which
varies from minimum 7 days to maximum 1 year. The commercial papers
are issued for minimum value of ` 5 lakhs and in multiples of ` 5 lakhs.
Commercial papers are issued at a discount. They are highly liquid assets. They
give higher returns than the returns earned on bank deposits. The commercial
banks, mutual funds, companies, etc. invest their funds in commercial papers.
(5) Certificate of Deposits (CDs) : These are the short-term unsecured negotiable
promissory notes normally issued by the commercial banks and financial
institutions. It is an acknowledgement or receipt of the money deposited in a

8 NAVNEET PRACTICE PAPERS : STD. XII (COMMERCE)

 bank for specific period at specified rate of interest. The certificate of deposits
are issued for minimum value of ` 1 lakh or in multiples of ` 1 lakh. It can be
issued at a discount to the face value. These certificates of deposits are issued for
minimum period of 7 days and maximum period of 1 year. For the certificates
of deposits issued by the financial institutions, maximum maturity period may
be 3 years. The certificates of deposits can be purchased by the individuals,
companies, firms, etc.
(6) Government Securities : The marketable debts securities issued by the
government or by the semi-government organisations which represent claims
on the government are called government securities. Usually, government
securities are issued by the central government, state governments, local self-
governments, e.g. Municipalities. The investment made in these securities is
safe because government guarantees the payment of interest and repayment of
principal amount invested.
(7) Repo or Repurchase Agreement : Repo or repurchase agreement refers to
an agreement where seller of a security, i.e. the person who requires funds is
ready to purchase it back, from the lender at a higher price, on a future date.
Normally, repo or repurchase agreement is entered between the Reserve Bank
of India (RBI) and the commercial banks. The rate at which banks borrow
from the Reserve Bank of India (RBI) is called Repo Rate. The rate at which
RBI borrows from the banks is called Reserve Repo Rate. In order to control
the money supply. RBI makes use of the repurchase agreement or Repo. This
repurchase agreement or repo, has high degree of liquidity in comparison to
other money market instruments. These agreements have maturity ranging
from 24 hours to several months.
(8) Money Market Mutual Funds (MMMFs) : The mutual funds which invest
their funds in money market instruments such as call money, Treasury Bills
(T-Bills), Certificate of Deposits (CDs), etc. are called Money Market Mutual
Funds (MMMFs). The MMMFs usually invest their holdings in debt instruments
which mature in the period of less than one year. They have high liquidity and
low risk. Individuals and corporates can invest their savings and surplus funds
in MMMFs.
(Write any 4 points with explanation.)
Q. 6. (1) (1) Depository system is a computerised system or organisation in which securities
are held in the electronic form. It acts as a custodian of securities. Bank is a
financial institution dealing in money and credit. It acts as a custodian of
accountholder’s money.
(2) Depository holds investors’ securities such as shares, debentures, bonds, etc. in
the electronic form in the similar way as bank holds accountholders’ money in

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

 deposit account. The depository keeps the securities of investors safe whereas
bank keeps the money of depositors or accountholders safe.
(3) In Depository system, securities are held in demat accounts having unique
Identity Document (ID), whereas in the bank, funds are held in accounts having
unique numbers.
(4) In Depository system, securities are transferred from one account to another,
while in the case of bank, funds are transferred from one account to another.
(2) (1) If the original share certificate is lost, mutilated, defaced or torn and is
surrendered to the company, the company can issue duplicate share certificate,
if applied by the shareholder. 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.
(4) If the company issues duplicate share certificate with prime motive to defraud,
it has to pay heavy penalty.
(3) (1) In simple terminology, payment made for use of other person’s money is
called interest. In other words, interest is a cost of renting money which is an
income for lender and expense of borrower.
(2) Interest is the price paid by the user for productive services rendered by the
borrowed capital. A company raises borrowed capital by issue of debentures,
accepting public deposits and through borrowing loans from the banks and
other financial institutions. It pays interest, at pre-determined rate on such
borrowed or debt capital.
(3) Interest creates fixed charge against the profit. Interest is not linked with the
profits of the company. Even if company incurs loss, it has to pay interest to
the lenders or creditors. Thus, payment of interest is an obligation/liability
and it is to be paid by the company compulsorily.
(4) Interest is required to be paid, irrespective of the profits of the company. For
payment of interest, passing of a resolution at any meeting is not necessary.
It is an obligation, the company has to fulfil in any condition.
(4) (1) The Securities and Exchange Board of India (SEBI) was established by the
Government of India in the year 1992 to regulate and promote the activities
of stock exchanges in India.
10 NAVNEET PRACTICE PAPERS : STD. XII (COMMERCE)
(2) In order to regulate and promote the stock exchanges, SEBI performs the
following functions : (i) regulates the business in stock exchanges.
(ii) registers and regulates working of intermediaries. (iii) promotes and
regulates self-regulatory organisations. (iv) prohibits fraudulent and unfair
trade practices. (v) promotes investors’ education and training and
(vi) prohibits insider trading in securities.
(3) SEBI has been given wide powers to regulate the activities of stock exchanges.
These powers are : (i) power to direct the stock exchange to maintain the
documents and records (ii) power to direct stock exchange to give information
and explanation (iii) power to approve and amend bylaws of stock exchange.
(4) All transactions in the stock exchanges are regulated and effected by the
Securities Contracts (Regulation) Act, 1956. The stock exchanges protect
investors’ rights and interests through the strict enforcement of their rules and
regulations.

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

Q. 7. (1) A letter to the member for the payment of dividend through Dividend Warrant :

APEX INDUSTRIES LIMITED

Registered Office : 113, Apex Tower, J. M. Road, Fort,
Mumbai – 400 001.
CIN : U41519 MH 1002 PLC221956.

Phone : 022-97675877 Website : [Link]

Fax : 022-30010331 E-mail : apexindustries@[Link]
Ref. No. W/LR-N/7/23-24 Date : 24th June, 2024

Mrs. Jemima Surve,

A105, Delta Bunglow,
P. K. Marg, Wadala,
Mumbai – 400 037.

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, 2024, Final Dividend @ ` 3.5 per equity
share of ` 10 each has been approved by the members for the year ending 31st March,
2024. 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 Number Dividend Gross Income Tax Net
Folio Shares Warrant Dividend Deducted Dividend
No. 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 Apex Industries Limited

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

12 NAVNEET PRACTICE PAPERS : STD. XII (COMMERCE)

(2) A letter to the debenture holder regarding payment of interest electronically :

ANTHONY ALLOY LTD.

Registered Office : 718, Bajaj Plot,
Milap Tower, Camp,
Pune – 411 038.
CIN : U75574 MH 1994 PLC322167

Phone : 020-20107575 Website : [Link]

Fax : 020-32017656 E-mail : anthony@[Link]
Ref. A/ID/20/22-23 Date : 7th March, 2024

Mr. Amol Dhariwal

211, Kingsway Apartment
N.S. Road,
Pune – 411 038.
Sub. : Payment of Interest on Debentures Electronically through ECS or NEFT
Dear Sir,
As instructed by the Board of Directors, this is to inform you that, the Board has
passed a resolution in the Board meeting held on 4th March, 2024 giving their
approval to pay interest @ 12% on Redeemable Debentures of ` 100 each for the
year ending 31st March, 2024.
The company has complied with all legal formalities in respect to payment of
interest on debentures.
The details about the payment of interest on your 200, 12% Redeemable Debentures
are given in the following schedule :
1 2 3 4 5 6
Register No. of Distinctive Gross Amt. TDS (10%) Net Amt. of
No. Debentures Numbers of Interest Interest
From To
M-42436 200 6401 6600 ` 2,400 NIL ` 2,400

By electronic transfer, interest amount as stated above will be credited to your

bank account, as per the bank details submitted by you to the company.
Thanking you,
Yours faithfully,
For Anthony Alloy Ltd.

Sign
(Mrs. Nikita Mane)
Company Secretary

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

 (3) A letter to depositor regarding renewal of his/her deposit :

FLORA FURNISHING LTD.

Registered Office : 2004, Maker Tower, Churchgate,

Mumbai – 400 020.
CIN : L35968 MH 2009 PLC354633

Phone : 022-32224456 Website: www.fl[Link]

Fax : 022-32254667 E-mail : florafurnishing@[Link]
Ref. No. D/DEP/61/22-23 Date : 22nd March, 2024

Miss. Alia Das,

26, Guru Apartment,
Government Colony,
Bandra (East),
Mumbai – 400 051.

Sub. : Renewal of Fixed Deposit

Dear Madam,

We are thankful to you for the application for renewal of deposit of ` 2,00,000 for
a further period of 3 years. With the application, we have received original Fixed
Deposit Receipt (FDR) No. 4340. Your application and FDR have been put before the
Board, for consideration and approval.

The Board of Directors in its Board Meeting held on 20th March, 2024 has approved
renewal of the old deposits vide Resolution No. 7. In accordance with the directions of
the Board and your request, the deposit of ` 2,00,000 (Rupees Two Lakhs only) kept
with the company has been renewed and accepted for a further period of 3 years on
same terms and conditions at the interest rate of 12% per annum.

The Board of Directors of our company expresses its gratitude for reposing confidence
and showing interest in our company.

Please find the Fixed Deposit Receipt No. 5340 enclosed herewith.

Thanking you,

Yours faithfully,
For Flora Furnishing Ltd.

Sign
(Mr. Trilok Shukla)
Company Secretary

Encl. : Fixed Deposit Receipt No. 5340

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. A debenture
is a loan accepted by a company by issuing a debenture certificate.
[B] Features : The features of debentures are shown in the following chart :

Features of Debentures
1. Promise
2. Face value
3. Time of repayment
4. Priority of repayment
5. Assurance of repayment
6. Interest
7. Parties to debentures
8. Authority to issue debentures
9. Status of debentureholder
10. No voting rights
11. Security
12. Issuers
13. Listing
14. Transferability

(1) Promise : The debenture is a written promise given by the borrowing

company that it owes certain specified sum of money to the holder of the
debenture.
(2) Face value : Each debenture has a definite face value which is expressed
in terms of money. The face value of debenture is usually of high
denomination. e.g. ` 100 or multiples of ` 100.
(3) Time of repayment : Usually, repayment date is specified in the debenture
certificate. The principal amount is refunded on due date.
(4) Priority of repayment : The capital of the debentureholders is repaid
before making payment of dues to the other claimants of the company.
Thus, debentureholders have priority in payment of their capital.
(5) Assurance of repayment : Debentures are considered as long-term
debts. They carry an assurance of repayment on maturity date.
(6) Interest : Debentureholders are paid interest at the rate agreed upon
at fixed intervals. It is a fixed liability of the company to pay interest
irrespective of whether the company earns profits or not.

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

 (7) Parties to debentures : There are three parties to the debentures :
(a) Company : The company is an entity which borrows the money by
issuing debentures.
(b) Trustees : A company is required to appoint debenture trustee if
it offers (or issues) debentures to more than 500 people. Through
trustee, the company deals with the debentureholders. An agreement
which company makes with the trustee is called Trust deed. It includes
the rights of debentureholders, powers of trustees and obligations of
company.
(c) Debentureholders : The persons or investors who provide
loan and receive debenture certificates as an evidence are called
debentureholders.
(8) Authority to issue debentures : The provisions made under Section 179
(3) of the Companies Act, 2013 have empowered the Board of Directors
to issue debentures.
(9) Status of debentureholder : As debentureholder provides loan to the
company, he is called as creditor of a company.
(10) No voting right : As per the provisions made under Section 71 (2) of
the Companies Act, 2013, a company cannot issue debentures carrying
voting right. A debentureholder being a creditor, does not have any voting
right in the general meetings of the company.
(11) Security : The debentures are usually secured by a fixed or floating
charge on the property of the company. If company fails to make
payment of interest or repayment of principal amount of debenture, the
debentureholder can sell off the property so charged to recover his dues.
(12) Issuers : Both public limited company and private company can issue
debentures to the public at large.
(13) Listing : The debentures must be listed on minimum one recognised
stock exchange.
(14) Transferability : The debentureholders can transfer debentures to any
other person through transfer deed or through instrument of transfer.
(Write any 6 points with explanation)

16 NAVNEET PRACTICE PAPERS : STD. XII (COMMERCE)

 (2) Share capital of a company are shown in the following chart :
Authorised or Nominal or Registered Capital
(5,00,000 E-Shares × ` 10 each = ` 50,00,000)

Issued Capital Unissued Capital

(4,00,000 E-Shares of ` 10 each = ` 40,00,000) (1,00,000 E-Shares of ` 10 each = ` 10,00,000)

Subscribed Capital Unsubscribed Capital

(3,00,000 E-Shares of ` 10 each= ` 30,00,000) (1,00,000 E-Shares of ` 10 each= ` 10,00,000)

Called-Up Capital Reserve Capital

(3,00,000 E-Shares of ` 5 each= ` 15,00,000) (3,00,000 E-Shares of ` 1 each= ` 3,00,000)

Uncalled Capital
(3,00,000 E-Shares of ` 4 each= ` 12,00,000)

Paid-up Capital Calls in Arrears

(2,50,000 E-Shares of ` 5 each= ` 12,50,000) (50,000 E-Shares of ` 5 each= ` 2,50,000)

Share capital of a company is made up of equity shares and preference shares. There
are various components of share capital which are as follows :
(1) Authorised / Nominal / Registered Capital : Authorised capital is the
maximum capital which company is authorised to raise by issuing shares as
mentioned in the Memorandum of Association of the company. It is also called
as registered capital as it is mentioned in the capital clause of Memorandum
of Association and the company pays stamp duty on this amount at the time of
incorporation. Authorised Capital is also called as nominal capital as usually a
company never issues the entire authorised capital. For e.g. Dream Time Ltd.
has authorised capital of ` 1,00,00,000 which can be divided into 10,00,000
equity shares having a face value of ` 10 each. In future, a company has a right
to increase its authorised capital by altering its capital clause of Memorandum
of Association.
(2) Issued and Unissued Capital : Generally, a company does not raise its entire
authorised capital but only a part of it is offered by the company to prospective
investors to subscribe. The part which is offered to investors to subscribe is
called as issued capital. The balance part which is not offered to public is
called as unissued capital. In future, the company can issue shares from the
unissued capital. The issued capital of a company may be equal to or less than
the authorised capital. For e.g. Dream Time Ltd. can have issued capital of
` 40,00,000 divided into 4,00,000 equity shares at face value of ` 10 each and

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

 the unissued capital will be ` 60,00,000 divided into 6,00,000 equity shares of
` 10 each.
(3) Subscribed and Unsubscribed Capital : Subscribed capital is that part
of issued capital which has been subscribed or bought by investors or
subscribers. The public may or may not subscribe for the entire issued
capital. Hence, that part of the issued capital not subscribed by the investors
is called as unsubscribed capital. Thus, the subscribed capital may be
equal to or less than the issued capital. For e.g. If ‘Dream Time Ltd.’ has
issued capital of ` 40,00,000 i.e. has issued 4,00,000 equity shares of ` 10
each, but the investors have bought or subscribed shares worth of only
` 36,00,000 i.e. 3,60,000 shares of ` 10 each then ` 36,00,000 is called as
subscribed capital. Hence, the unsubscribed capital will be ` 4,00,000 divided
into 40,000 equity shares of ` 10 each.
(4) Called-up Capital, Uncalled Capital and Reserve Capital : At the time of
issue, full value of the shares is usually not demanded by the company. Called-
up capital is that part of subscribed capital which a company has ‘called’ or
demanded to be paid by the shareholders. The balance capital which is not
demanded from the shareholders is called as uncalled capital. Reserve capital
is a part of uncalled capital. A company can decide to keep aside, a part of its
uncalled capital to be called up only at the time of winding-up of a company to
meet its financial requirements. For e.g. ‘Dream Time Ltd.’ may have called-up
capital of ` 18,00,000 i.e. 3,60,000 equity shares of face value of ` 10 each,
out of which ` 5 per share has been called up/demanded by the company. If the
company decides to keep ` 1 per share as capital to be collected at the time of
the winding-up, the Reserve Capital will be 3,60,000 i.e. 3,60,000 equity shares
of ` 10 each, where ` 1 per share is kept as reserve capital. Uncalled capital will
be ` 14,40,000 i.e. 3,60,000 equity shares where ` 4 per share will be called up
in future.
(5) Paid-up Capital and Calls in Arrears : Paid-up capital is the total amount of
money actually paid up by the shareholders when the company has called up or
demanded them to pay. The amount not paid-up by the shareholders is called as
calls in arrears or unpaid calls. Every shareholder has to pay calls as and when the
company demands. Failure to pay the calls may lead to forfeiture of shares. For e.g.
‘Dream Time Ltd.’ has made a call of ` 5 per share, so if all the shareholders have
paid the calls, then the paid up capital will be ` 18,00,000 (3,60,000 equity shares
@ ` 5 per share). But if for e.g. 10,000 equity shares calls are not paid, then the
paid-up capital will be ` 17,50,000 (3,50,000 equity shares ≥ ` 5 per share)
and calls-in-arrears will be ` 50,000 (10,000 equity shares ≥ ` 5 per share).
__________

18 NAVNEET PRACTICE PAPERS : STD. XII (COMMERCE)