CLASS XII ACCOUNTANCY THEORY

 4 A) Distinguish between Equity Shares and Preference Shares pointwise:

Equity Shares:

1. **Ownership:** Equity shares represent ownership in a company.

2. **Voting Rights:** Equity shareholders usually have voting rights in company decisions, allowing them to participate in corporate governance.

3. **Dividends:** Dividends for equity shareholders are not fixed and depend on the company's profitability and the decision of the board of directors.

4. **Risk and Reward:** Equity shareholders bear higher risk compared to preference shareholders but also have the potential for higher returns if the company performs well.

5. **Residual Claim:** In the event of liquidation, equity shareholders have a residual claim on the assets after satisfying the claims of preference shareholders and creditors.

Preference Shares:

1. **Ownership:** Preference shares also represent ownership, but they do not usually carry voting rights.

2. **Dividends:** Preference shareholders are entitled to a fixed rate of dividend, and this takes precedence over the dividend for equity shareholders.

3. **Priority in Repayment:** In the event of liquidation, preference shareholders have a higher claim on assets compared to equity shareholders, but they are subordinate to creditors.

4. **Redemption:** Some preference shares come with a redemption feature, allowing the company to buy back the shares after a specified period.

5. **Risk and Reward:** Preference shareholders bear lower risk compared to equity shareholders but receive a fixed return, limiting their potential for higher returns compared to equity shareholders.

4)B) Short Note:

I)Surrender of shares

ii)Bonus share 

i) Surrender of Shares:

Surrender of shares occurs when a shareholder willingly returns their shares to the company. This could be due to various reasons, such as a desire to exit the company or a part of strategic restructuring. Unlike selling shares on the open market, surrendering shares involves direct return to the issuing company.

ii) Bonus Share:

Bonus shares are additional shares given to existing shareholders without any additional cost. It's a way for a company to distribute its profits or reserves among shareholders in the form of shares. While this doesn't increase a shareholder's proportional ownership, it enhances the overall number of shares they hold.

c) Forfeiture of Shares:

Forfeiture of shares happens when a shareholder fails to meet certain obligations, typically related to payment. If a shareholder doesn't pay the calls (unpaid portion of the share price), the company may forfeit their shares. This means the shares are taken back by the company, and the shareholder loses ownership rights.

Q5a) Short Note

   a)Debt Equity Ratio

   b) b) **Liquidity Ratio:**

a) Debt Equity Ratio:

The Debt Equity Ratio is a financial metric that assesses a company's proportion of debt relative to equity. It's calculated by dividing total debt by shareholders' equity. This ratio helps gauge a firm's financial leverage and risk. A higher ratio indicates higher financial risk, as the company relies more on borrowed funds.

b) **Liquidity Ratio:**

Liquidity ratios evaluate a company's ability to meet its short-term obligations with its liquid assets. Common examples include the Current Ratio and Quick Ratio. These ratios provide insights into a company's short-term financial health and its capacity to cover immediate liabilities using assets that can be quickly converted to cash.

Q5b)Write four objectives of  Financial Statement Analysis

1. **Assessing Financial Health:** One objective is to evaluate the financial health and stability of a company by analyzing its financial statements. This involves examining key indicators such as liquidity, solvency, and profitability.

2. **Facilitating Decision-Making:** Financial statement analysis aims to provide valuable information for decision-making. This includes assisting investors in making investment decisions, creditors in assessing creditworthiness, and management in strategic planning.

3. **Comparative Performance Evaluation:** Another objective is to compare the financial performance of a company over time or against industry benchmarks. This helps identify trends, strengths, and areas for improvement, aiding stakeholders in making informed judgments.

4. **Predicting Future Performance:** Financial statement analysis seeks to provide insights into a company's future prospects. By examining historical data and trends, analysts aim to make reasonable predictions about the company's future financial performance