SOLUTIONS : PRACTICE PAPER 2

Q.  1.  (A) 

(1) When goods are delivered by supplier to customer on the basis of deferred

payment, it is called Trade Credit.

(2) A legal instrument conveying the assets of a company to the Debenture

Trustees is called Debenture Trust Deed.

(3) To collect deposits from public, eligible public company must have a net worth

of not less than ` 100 crores.

(4) Dividend can be declared only on recommendation of Board of Directors.

(5) The largest and most modern stock exchange in India is the National Stock

Exchange.

Q.  1.  (B)

(a)  Corporate finance – Deals with acquisition and use of capital

(b)  Voluntary return of shares to company by member – Surrender of shares

(c)  ISIN – 12 Digit number/code

(d)  Fluctuating rate of dividend – Equity shareholders

(e)  Financial Market – Trading of Financial Securities

Q.  1.  (C)

(1)  Debentures — Interest at fixed rate.

(2)  BSE — BOLT.

(3)  First time offer of shares — Initial Public Offer

(4)  Board of Directors — Power to issue debentures

(5)  Government fund — IEPF

Q.  1.  (D)

(1)  When there is boom in economy sales will increase.

(2) Secured debentures must be redeemed within 10 years from the date of its issue.

(3) Company issues circular to invite its members for subscribing to its deposits.

(4) Interest is payable every year irrespective of profits made by company.

(5) Secondary market is more commonly known as the stock exchange.

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

Q.  2. (1) Investment Decision :
(1) When the different sources of raising the finance from capital market are made
available to the company, the finance manager is required to decide about the
systematic use and judicious investment of such funds to earn maximum
returns for its owners. Accordingly, investment decision refers to the decision
taken by the finance manager in respect to utilisation of funds raised by the
business enterprise in systematic manner so that such use of funds or investment
of funds yield maximum returns for its owners.
(2) Investment decision relates to the selection of assets in which funds are to be
invested. The business enterprise has to take into account the cost of capital.
Once the cost of capital is calculated and ascertained, the business enterprise
can allocate or use the available funds in such a manner that returns on such
investment or use of funds exceed the cost of capital. Thus, searching investment
opportunities and deploying the funds successfully in the business, is popularly
known as investment decision.
(2) Employees Stock Option Scheme (ESOS) :
(1) Under this scheme, permanent employees, Directors or officers of the company
or its Holding Company or Subsidiary company are offered the benefit or right
to purchase the equity shares of the company at a future date, at a pre-determined
price. 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 a price lower than the market price, if they purchase them
within a stipulated period.
(2) 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 .
(3) Bonus Shares :
(1) Bonus shares can be defined as shares issued by the company to its existing
equity shareholders free of charge out of accumulated reserves. The bonus
shares are equity shares that are issued to existing equity shareholders as a gift
by the company. These are company’s accumulated earnings which are not

given out in the form of dividends, but are converted into free shares.

2 NAVNEET PRACTICE PAPERS : STD. XII (COMMERCE)

 (2) A company following conservative dividend policy shall transfer a large portion

of divisible profits to the reserves every year. The accumulation of such retained

profits may enable the company to capitalise its profits so as to establish proper

balance between the paid-up capital and reserves. However, the capitalisation

of profits is termed as issue of Bonus Shares.

(4)  Dematerialisation :

(1) The process of conversion of share certificates and other securities certificates

from their physical form into an electronic form is called dematerialisation of

shares and securities. Investors can hold shares and securities either in the

electronic form or in the physical form.

(2) The Depository system eliminates all the risks associated with physical

certificates such as delays, lost, theft, mutilation, bad deliveries, etc. For this

reason, the investors prefer to dematerialise their securities. Recently, SEBI

has made the dematerialisation compulsory, for those shares and securities

which are traded often and on large scale on the stock exchange.

(5)  Interest :

(1) In the context of financial terminology, interest is an amount of money or

reward paid, for using money of other person. Borrower borrows money from

lender and pays interest for the use of money to the lender. Hence, interest is a

cost of renting money for the borrower. Interest is the income for the person

who lends money. From the point of view of the company, interest is the return

payable by the company, to its creditors i.e. debentureholders, bondholders and

depositholders for loan borrowed by the company.

(2) There is direct relation between the risk and interest. If risk undertaken is
higher, its reward in the form of interest will be higher. Conversely lower the
risk, less will be interest. The rate of interest is always mentioned in percentage,
on the amount of principal. Interest is always expressed as certain percentage
per annum on Principal, e.g. interest @ 10% per annum on ` 1,00,000 is ` 10,000.
(6) Money Market :
(1) The type 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.

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

 (2) Money market is an important segment of financial system, that fulfils 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 comprises of RBI, commercial banks, mutual funds, financial institutions,
primary dealers, corporates, etc.
Q.  3. (1) (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.
(2) (a) TRI Ltd Company should offer IPO as IPO (Initial Public Offer)  is the
process of offering shares of a company to the public for the first time.
(b) As TRI Ltd. Company is newly incorporated company and do not have any
shareholders, it cannot offer bonus shares to raise the capital as Bonus
shares can be offered to existing shareholders and it can be offered only
out of profit or reserve funds which can be generated only over a period of
time.
(c) TRI Ltd. Company must enter into an underwriting agreement as they are
newly incorporated and new entrant in the primary market and thus lack
confidence of investors and underwriting agreement gives guarantee of
minimum subscription.
(3) (a) Mr. Rohit should opt for preference shares issued by the company.
(b)  Mr. Rohit would receive dividend as return on his investment.
(c)  The return on investment which Mr. Rohit receives is fixed.

4 NAVNEET PRACTICE PAPERS : STD. XII (COMMERCE)

Q.  4. (1) 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 Issues, Rights issues such as IPO and FPO.
Issues, ESOS, etc.

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

 (2) Dividend Interest

1. Meaning
The return in terms of money payable to The return in terms of money payable to
the shareholders by their company for the lenders (creditors) by the company
their investment in the share capital is such as depositholders, debentureholders,
called Dividend. 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 and for interim
dividend only board resolution is
required.

6 NAVNEET PRACTICE PAPERS : STD. XII (COMMERCE)

(3) 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 and sold have maturity period of more
year 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, shares,
bills, repurchase agreements, certificate government securities, etc. are used for
of deposits, etc. are used for lending and 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 Participants functioning in capital
market are central bank (RBI), market are stock exchanges, commercial
commercial banks, non-banking finance banks, non-banking finance companies,
companies, corporates, bill brokers, financial intermediaries, etc.
Central and State Governments, etc.
6. Risk
In money market, the prices of the In capital market, instruments are
instruments remain stable and maturity of long-term and subject to market
period of instrument is less and hence fluctuations and hence in comparison
they carry low financial and market risk. to money market, it carries very high
financial and market risks.

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

 (4) Jobber Brokar

1. Meaning
A dealer who deals in buying and selling An agent who buys or sells the securities,

of securities, in his own name is called a on behalf of his principal or client is

Jobber. called a Broker.

2. Nature of trading
A jobber carries on trading (dealings) A broker carries on trading (dealings)

only with the broker. with the jobber, on behalf of his investors.
3. Restrictions on dealings 
A jobber cannot directly buy or sell A broker acts as a link (middleman)

securities in the stock exchange. He between the jobber and the investors. He

cannot deal directly with the investors. purchases and sells securities on behalf
of his investors.

4. Agent
A jobber is a special mercantile agent. A broker is a general mercantile agent.

5. Form of consideration
A jobber gets consideration for his A broker gets consideration for his

efforts in the form of profit. The positive efforts in the form of commission or

difference between sale and purchase of brokerage. The rate or amount of

securities constitutes his profit. brokerage is fixed by stock exchange

rules.
6. Proportion of consideration
The proportion of consideration (profit) The rate or amount of brokerage payable

payable to a jobber is determined by the to a broker is fixed by the stock exchange

competition of jobbers. rules and regulations.

Q.  5 (1)
(1) For survival and growth of business enterprise, credit sale of goods is inevitable.
Business cannot run on continuous basis without credit sale. Credit is treated
as soul of business. Trade credit is one of the major sources of short-term finance
to the business enterprises. Trade creditors mean and include manufacturers,
producers, suppliers of goods and materials, wholesalers, etc.

(2) Usually, trade creditors sell tangible goods and materials to other business firms
on the basis of deferred payment i.e. the payment to be made in future. Thus,

8 NAVNEET PRACTICE PAPERS : STD. XII (COMMERCE)

 credit period is granted or extended by the trade creditors to the borrower with
the main objective to expand sales. The period of trade credit is also extended
by the business firms due to custom i.e. long standing practice developed over
long period of time.
(3) Trade credit refers to the facilities by which business firms who purchase goods
or materials on credit basis are permitted to delay payment for goods or materials
they have bought. Trade credit does not mean cash loan. It is an outcome of
credit sale of goods or services. In such credit sale, the payment has been
postponed to future date.
(4) Usually, small retailers rely on getting trade credit from suppliers to a great
extent. Trade credit is an easiest and cheapest method of credit which can be
raised or obtained without making any agreement or signing any document. It
is considered as free cost source of finance.
(5) Trade creditors i.e. manufacturers, wholesalers or suppliers allow 30 days or
more to their customers for making payment of bill amount. They also offer
cash discount if their customers make payment within a short period say 10
days or 15 days from the date of delivery of goods. The terms and conditions of
trade credit are very lenient. It is readily available if goods or services are
purchased on credit in bulk.
(2) The Board of Directors is empowered by provisions made in the Articles of
Association to refuse transfer of shares on the following grounds : 
(1) When transferee of partly paid shares is a minor person i.e., a person below the
age of 18 years.
(2) When the provisions for transfer of shares as given in the Articles of Association
is not fulfilled by the member.
(3) When a company has a claim or lien on the shares, to recover any amount payable
by the shareholder to the company.
(4) When the instrument is not accompanied by the share certificate.
(5) When the Central Government gives instructions or directions to the company
not to give effect to the transfer of shares.
(6) When the instrument of transfer is incomplete or not properly filled in.
(3) The importance of depository system is shown in the following chart :

Importance of Depository System

1.  Eliminates huge volume of paper work

2.  Use of state of art technology

3. Eliminates storage and handling of certificates

4. Reduces cost and efforts involved in storage and handling of securities.

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

 The importance of depository system is explained as follows :
(1)  Eliminates huge volume of paper work : In paper or scrip based system,
huge volume of paper work was involved in trading, transfer and transmission
of securities. For obtaining duplicate certificate (if original certificate is lost)
also, the owner has to complete lot of paper work. Thus, the depository system
eliminates huge volume of paper work involved in paper (scrip) bases system.

(2) Use of state of art technology : In depository system, the use of state of art
technology facilitates the swift transfer and transmission of securities. The
distribution of dividend, interest and other benefits, issue of bonus shares and
rights shares are automatically and immediately credited into demat account of
the investors. Thus, depository system offers scope for paperless trading.

(3)  Eliminates storage and handling of certificates : In depository system,

there is no need of maintaining the records of transfer documents and paper of
securities. All the records of transfer of securities and other related information
are saved and stored in the computer. Thus, depository system eliminates storage
and handling of certificates.

(4) Reduces cost and efforts involved in storage and handling of securities : The

depository system minimises the cost and efforts involved in storage and handling
of certificates. This system also saves stamp duty, the expenses on postage,
courier, registration, etc. The Depository (computerised system) stores and
maintains records of all transactions regarding purchases, sales and transfer of
securities. This helps to reduce cost and efforts involved in storage and handling
of certificates.
Q.  6.  (1)
(1) Equity shareholders are the owners of the company who bear ultimate risk
associated with the ownership. They are also called ‘residual claimants’ of the
income and assets. This is because as an owner after paying claims of all other
investors and stakeholders the remaining funds and property belong to equity
shareholders. Conversely at the time of winding-up if no fund is left after paying
claims to other investors, equity shareholders will not get anything. They have
to suffer capital loss.

(2) Equity shareholders do not have guarantee of getting dividend every year. They
get dividend at the rate recommended by the Board of Directors. The fortune of
equity shareholders fluctuates with the ups and downs of the company.

(3) If the company earns handsome or huge amount of profit, equity shareholders
enjoy great financial rewards in the form of higher dividend. Conversely, if the
company suffers heavy loss, the risk falls mainly on equity shareholders.

10 NAVNEET PRACTICE PAPERS : STD. XII (COMMERCE)

 Because of these reasons, equity share capital is known as venture capital or

risk capital. Thus, the owners of equity shares are real risk bearers.

(4) Equity shareholders are described as, ‘shock absorbers’ when company has

financial crisis. If the company suffers loss or its income falls, the company

forced to reduce the rate of dividend. Because of this situation, the market value

of equity shares falls down in the share market resulting into capital loss to its

shareholders. Thus investment in equity shares is risky.

(2) Companies which issue secured debentures are required to appoint Debenture

Trustees. Debenture Trustees are institutions which safeguard the interest of

the debentureholders.

Following are the important points about Debenture Trustees :

(1) The company creates a charge on its movable or immovable assets or assets of

its subsidiary company or holding company. Charge is created in favour of the

Debenture Trustees.

(2) They become the custodian of the assets on which charge has been created.

Debenture Trustees are appointed by the company, before prospectus or letter

of offer/offer letter is issued or within 60 days from the date of the allotment of

debentures.

(3) The Trustees must give a written consent to act as Debenture Trustees.

(4) The prospectus or letter of offer / offer letter must mention the names of

Debenture Trustees.

(5) Debenture Trustees have to redress the complaints of debentureholders, if the

company defaults in making payment of debentures.

(6) Trustees can approach the NCLT (National Company Law Tribunal) who can

order a defaulting company to repay the principal amount or interest.

(3) The following are the general principles/rules that a company must follow in

addition to the provisions of the Companies Act, 2013 :

(1)  The allotment must be made by proper authority. The Board of Directors or the

allotment committee set up by the Board has the authority to allot shares. A

company can allot shares only if it has received a written application for shares

from the applicant.

(2) As per the Act, allotment shall be done within 60 days of receipt of application

money. Allotment can be made from the fifth day from date of issue of prospectus.

Shares should be allotted on the same terms as stated in the prospectus and

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

 application form. No change in the terms of allotment or new conditions can

be added at the time of allotment.

(3) The decision of allotment must be communicated to the applicant in writing.

Company has to inform the applicant that shares have been allotted to him

by sending a letter of allotment or allotment advice. This letter gives details

of number of shares allotted, amount of allotment money to be paid, etc.

(4) The allotment must be unconditional and absolute. A company cannot allot

shares by violating or contradicting any other existing laws. e.g. shares

cannot be allotted to a minor.

(4)

(1) The Securities and Exchange Board of India (SEBI) was established by the

Government of India in the year 1992 to regulate, control and promote the

activities of stock exchanges in India. SEBI regulates and controls the various

activities organised and carried out by the intermediaries in the stock

exchanges.

(2) In order to regulate, promote and control 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. (vi)  prohibits

insider trading in securities and (vii)  conducts research and carrying out

publications.

(3) SEBI has been given wide powers to control 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

(iv)  power to direct company to submit periodical returns (v)  power to direct

the company to list their shares and securities.

(4) All transactions in the stock exchanges are regulated, effected and controlled

by the Securities Control (Regulation) Act, 1956. The stock exchanges protect

investors’ rights and interests through the strict enforcement of their rules

and regulations. Undesirable practices of the members such as brokers,

jobbers, top officials and others are punishable with suspension of their

membership, imprisonment and heavy fines.

12 NAVNEET PRACTICE PAPERS : STD. XII (COMMERCE)

  
Q.  7. (1) A letter to the shareholder informing him/her about issue of Bonus Shares :

MOTHER DRUMS LIMITED

Registered Office : 144, ITI Park,
Ambad MIDC, Nashik  –  400 401.
CIN : L4443 MH 2009 PLC714439
Phone : 0265-224453677 Website : www.motherdrums.com
Fax : 0265-22447909 E-mail : motherdrums@gmail.com
Ref. No. ST/MG-QAD/16/22-23 Date : 7th November, 2022

Ms. Sumitra Patel,

3115, Navrangpura,
Ring Road,
Ahmedabad  –  411 038.

Sub. : Issue of Bonus Shares

Dear Madam,
I am instructed by the Board of Directors to inform you that in accordance with the
ordinary resolution passed in the Extraordinary General Meeting of the company held
on 5th November, 2022, shareholders have unanimously given their approval, on the
recommendation of Board of Directors to issue Bonus Shares. Bonus Shares are issued
in the ratio of 2 : 1, i.e. one equity share for every 2 equity shares held by the equity
shareholders, as on record date 4th November, 2022.

The Details of issue of Bonus Shares are given in the following schedule :

1 2 3 4 5
No. of Shares No. of Bonus D.P. ID No. Client ID No. Date of
held on record Shares Issued / Credit to
Date Allotted Credited to Demat Account No. Demat A/c

150 75 IN 347601 42296590 7-11-2022

The Company has completed all the formalities in respect to provisions for the
issue of Bonus Shares. The Bonus Shares issued will rank pari passu with the
existing equity shares.
Thanking you,
Yours faithfully,
For Mother Drums Ltd.
Sign
(Mr. A. M. Narkar)
Company Secretary

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

 (2) A letter to debentureholder informing him/her about payment of interest

electronically through ECS/NEFT :

JACK FOOD LIMITED

Registered Office : 718, Bajaj Plot,
Milap Tower, Camp, Pune  –  411 038.
CIN : L75574 MH 1994 PLC322167
Phone : 020-20107575 Website : www.jackfood.com
Fax : 020-320176565 E-mail : jackfood@gmail.com
Ref. A/ID/20/21-22 Date : 7th March, 2022
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 to you that, the Board
has passed a resolution in the Board meeting held on 4th March, 2022 giving their
approval to pay interest @ 12% on Redeemable Debentures of ` 100 each for the
year ending 31st March, 2022.
Your company has completed 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. of T. D. S. Net Amt. of
No. Debentures Numbers Interest (`) (10%) Interest (`)

From To
42436 200 6430 6629 ` 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 Jack Food Limited

Sign
(Mrs. Nikita Mane)
Company Secretary

14 NAVNEET PRACTICE PAPERS : STD. XII (COMMERCE)

 (3) A letter to depositor informing him about payment of interest through Interest

Warrant :

TRING MOBILE LIMITED

Registered Office : 101, Capital House, S. V. Road,
Borivali (W), Mumbai  –  400 092.
CIN : L05321 MH 1997 PLC459960
Phone : 022-60905469 Website : tringmobile.com
Fax : 022-60903321 E-mail : tringmobile@gmail.com
Ref. No. R/DEP/232/21-22 Date : 12th January, 2022
Mrs. Diana Mathew,
D/5, Milan Apt.,
Shree Nagar, Camp,
Pune  –  411 001.
Sub.: Payment of Interest on Fixed Deposits
Dear Madam,
We take great pleasure to inform you that the payment of interest @ 12%
p.a. on your fixed deposit is due on 15th January, 2022. The Board of Directors
in their Board Meeting held on 10th January 2022, has already given approval
for payment of interest vide Resolution No. 14. ‘Interest Warrant’ No. A 4664,
dated 15th January, 2022 drawn on Bank of India, Kothrud Branch for ` 6,000 is
attached herewith. Your company has completed all the legal formalities relating
to payment of interest on deposits. The following schedule shows the details of
your fixed deposit and interest payable on deposit.

1 2 3 4 5 6 7
Interest Fixed Deposit Rate of Gross TDS Net Amount
Warrant Deposit Amount Interest Amount of @ of Interest
No. Receipt. No. (`) (%) Interest (`) (10%) Payable (`)
A 4664 C674 ` 50,000 12% ` 6,000 NIL ` 6,000

Please find the Interest Warrant enclosed herewith and detach the Interest
Warrant along the perforated line.
Thanking you,
Yours faithfully,
For Tring Mobile Ltd.

Sign
(Mr. Raj Shetye)
Company Secretary
Encl.: Interest Warrant.

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

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 Security of Transfer of Repayment of Conversion

Secured and Registered and Redeemable and Convertible and

 Unsecured Bearer Irredeemable  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

16 NAVNEET PRACTICE PAPERS : STD. XII (COMMERCE)

 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.
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 instalments
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
life-time 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) The statutory provisions for allotment of shares are shown in the following
chart :

Statutory Provisions for Allotment of Shares

1.  Registration of prospectus

2.  Application money
3.  Depositing the application money
4.  Minimum subscription
5.  Beginning of allotment work
6.  Closing of the subscription list
7.  Oversubscription
8.  Permission to deal on stock exchange

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

 These are provisions laid down by the Companies Act, 2013. These statutory
provisions are explained as follows :
(1)  Registration of prospectus : If a company raises capital by issuing shares, it has
to file prospectus with the Registrar of Companies. If it raises capital privately,
then Statement in Lieu of Prospectus is required to be filed with the Registrar of
Companies. [Section 60(1)]
(2)  Application money : Application money should not be less than 5% of face
value of shares. The capital issued should be made fully paid within 12 months
from the date of issue. [Section 69(3)]
(3) Depositing the application money : Application money should be deposited in
a separate bank account known as ‘Share Application Money Account’ opened in
a Scheduled Bank by the company. [Section 69 (4)]
(4) Minimum subscription : A company is allowed to make allotment of shares
only after receiving minimum subscription amount specified in the prospectus.
The company must receive this amount only through application within
60 days of closure of issue of prospectus, otherwise, the entire money received
on application must be refunded to the applicants within the next 8 days.
[Section 69(1)]
(5) Beginning of allotment work : The company can start the work of allotment of
shares after 5 days of filing the prospectus or such later date as may be specified
in the prospectus (Section 72). In case the company files statement in Lieu of
Prospectus, it can start the work of allotment after 3 days of filing such statement.
(Section 70)
(6) Closing of the subscription list : The list for public issue must be open for at
least 3 working days and for a maximum period of 10 working days. However, in
case of infrastructure company and rights issue, such list must open for 21 days
and 60 days respectively.
(7) Oversubscription : In case of oversubscription, a company is required to refund
excess application money to the concerned applicants, failing which every officer
of the company responsible is punishable for same.
(8) Permission to deal on stock exchange : The companies intending to raise the
capital by public issue are required to list their shares on at least one recognized
stock exchange compulsorily. The secretary has to make an application for the
listing of the shares within 10 days from the date of issue of the prospectus.
(Section 73)

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18 NAVNEET PRACTICE PAPERS : STD. XII (COMMERCE)