Ch11 Equity

Question 1

Definition of share capital.

Answer 1

Share capital represents the contribution of shareholders to the formation of capital.

Question 2

What is authorized capital?

Answer 2

Authorized capital represents the maximum amount of capital which can be issued by the management in specified time based on the solution of the general assembly or other similar governing body of the company.

Question 3

What is called up capital?

Answer 3

This is capital issued under the understanding that the capital will be paid for at a later date.

Question 4

What is uncalled capital?

Answer 4

Uncalled capital is the unpaid portion of the subscribed capital.
It is deducted from capital in the balance sheet.

Question 5

List at least 3 different types of capital increase.

Answer 5

1. In cash. To obtain additional long-term financial resources.
2. Capitalization of reserves. Strengthen the capital as a gesture of responsibility towards the firm’s trading partners.
3. In kind. Reinforce the growth potential of the firm by adding new tangible and intangible assets that will enhance the firm’s future development.
4. Conversion of liabilities. Reimburse debt without impacting on cash: the creditor abandons its claim in exchange for shares.
5. Share dividend. Reinforce the capital structure without strapping either the firm or the shareholders for cash.