Maharashtra State BoardHSC Commerce 12th Board Exam
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The Balance-sheet of a Donald Company for the year 2018-19 reveals equity share capital of Rs. 25,00,000 and retained earnings of Rs. 50,00,000. - Secretarial Practice

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Short Note

Study the following case/situation and express your opinion.

The Balance-sheet of a Donald Company for the year 2018-19 reveals equity share capital of Rs. 25,00,000 and retained earnings of Rs. 50,00,000.

  1. Is the company financially sound?
  2. Can the retained earnings be converted into capital?
  3. What type of source retained earning is?
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Solution

  1. Yes. Since the company has a sufficient amount of capital (equity share capital of ₹ 25,00,000 and retained earnings of ₹ 50,00,000), it can be called financially sound.
  2. Yes, the retained earnings are converted into capital. The retained earnings cannot be an initial source of capital but they can be an important source when the company runs its business profitably. The management can convert such earnings into permanent share capital by issuing bonus shares.
  3. Retained earnings are an internal source of finance or a form of owned capital.
Concept: Sources of Owned Capital - Retained Earnings
  Is there an error in this question or solution?
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APPEARS IN

Balbharati Secretarial Practice 12th Standard HSC Maharashtra State Board
Chapter 2 Sources of Corporate Finance
Exercises | Q 3. 1. | Page 37
SCERT Maharashtra Question Bank 12th Standard HSC Secretarial Practice Maharashtra State Board 2022
Chapter 2 Sources of Corporate Finance
Study the following case/situation and express your opinion | Q 1
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