A-AS Level (CIE) Accounting Paper-1: Specimen Questions with Answers 93 - 93 of 93

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Question 93

Question

MCQ▾

Right shares are the shares

Choices

Choice (4)

a.

Issued to the directors of the company

b.

Issued by a newly formed company

c.

First offered to the debenture holders

d.

First offered to the existing shareholders

Answer

d.

Explanation

When a company enters the existing shareholders for capital generation and issue shares at a discount particularly for these existing shareholders, we call it right issue. The offer made to the shareholders is not binding upon them, they can renounce this right in favor of others. The object of right share is to:

  • To ensure equitable distribution of shares and the proportion of voting rights is not affected by issue of fresh shares.
  • Securities is offered to the existing shareholders of the company through a letter of offer.

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