We are presenting you the ESOP MCQ for SEBI Grade A Commerce and Accountancy Section of the exam.
Q1. Employees Stock Option cannot be issued to
- Managing Director
- Permanent Employee
- Contractual Employee
- Independent Director
- Both 3 and 4
As per rule 12 “Issue of Employee Stock Options” of The Companies (Share Capital and Debentures) Rules, 2014.
Employee stock option can be issued to
- a) permanent employee of the company who has been working in India or outside India; or
- b) a director of the company, whether a whole-time director or not but excluding an independent director; or
- c) an employee as defined in clauses (a) or (b) of a subsidiary, in India or outside India, or of a holding company of the company
but does not include-
- an employee who is a promoter or a person belonging to the promoter group; or
- a director who either himself or through his relative or through any body corporate, directly or indirectly, holds more than ten percent of the outstanding equity shares of the company.
Q2. _______ means the process by which the employee is given the right to apply for shares of the company against the option granted to him in pursuance of ESOS
- Exercise Period
- None of the above
- Grant: Grant means issue of option to the employees under ESOS
- Option: Option means a right but not an obligation granted to an employee for a specified period of time in pursuance of ESOS to purchase or subscribe to the shares of the company at a pre-determined price.
- Vesting: It is the process by which the employee is given the right to apply for shares of the company against the option granted to him in pursuance of employee stock option scheme.
- Exercise Period: It is the time period after vesting within which the employee should exercise his right to apply for shares against the option vested in him in pursuance of the ESOS.
Q3. On 1st April 2018 XYZ Ltd granted 5000 ESOPs at INR 30 per share, when the market value was INR 50 per share. The options were to be exercised till the month of Mar’2019. Calculate the amount of expenditure to be recoded in Statement of P&L of the company.
Note 1: All employee vested the option of ESOP
Note 2: Market value of share on 31.03.2019 is INR 60.
- No expense as capital raised from employee
Market Price on the date of grant of option = 50 per share whereas stock option price = 30, Hence, the difference is 50 – 30 = 20 per share is equivalent to employee cost or employee compensation expense and will be charged to P/L Account as such for the number of options exercised i.e. 5,000 shares.
Cost to be recognised = 5,000 * 20 = 1,00,000/-
Q4. GAIL is considering a buy-back. What will be the effect on Market Float after the Buy-Back of Equity share from secondary market?
- No Change in Market Float
- Market Float will Increase
- Market Float will Decrease
- Depends on the rate at which Buy-Back is made
- No relation between market float and Buy-back of shares
Market float are shares which are available for sale/purchase in secondary market. After buy-back, the number of share available in secondary market will reduce and hence the market float will decrease
Q5. Buy – Back of Shares can be made out of
- Free reserves
- Securities Premium
- Proceeds from Issue of Preference Shares
- Proceeds from Issue of Debentures
- Any of the above/Combination of any of the above
As per Section 68 (1) of the Companies Act 2013, buy back of shares can be made out of: its free reserves; or the securities premium account; or the proceeds of any shares or other specified securities
Q6. ABC company having share capital of INR 10,00,000/- issued Bonus Shares in the ratio of 1:1. The new share capital is
- No Change in Capital
Note: Share capital will increase to 20,00,000/- due to reclassification of profits into capital. Company’s Net Worth will remain same.
Bonus issue is also known as ‘capitalisation of profits’. Capitalisation of profits refers to the process of converting profits or reserves into paid up capital. A company may capitalise its profits or reserves which otherwise are available for distribution as dividends among the members by issuing fully paid bonus shares to the members.
Q7. A company offers new shares of INR 100 at INR 125 to existing shareholders as right share in ratio of 1:4 (1 new share for 4 existing shares held). The cum-right market price of the share is INR 150. Calculate the value of Right per share?
- INR 25
- INR 10
- INR 5
- INR 1
- No value of right
Ex-right value of the shares = [Cum-right value of the existing shares + (Rights shares X Issue Price)] / (Existing Number of shares + Number of right shares)
Value of right = Cum-right value of share – Ex-right value of share.
Ex right price of share = (150*4 + 125*1)/ (4+1) =145
Right per share = Cum right price (150) – ex right price of share (145) = INR 5
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