Current rate of a company is 12 and its annual profits are Rs 1 00 000 If the amount of equity share...........

Finance( Revenue Account ) Capital Structure

Current rate of a company is 12% and its annual profits are Rs. 1,00,000. If the amount of equity share capital is Rs. 9,00,000, it will be a stage of:

Over-capitalisation

Under-capitalisation

Fair Capitalistion

None of these

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Explanation:

Over capitalization is a state where earnings are not sufficient to justify the fair return on amount of share capital which has been issued by the company. In the given problem the current rate of earnings is 12% but actual earning rate of company is 11.11% (100000/900000 * 100) which is a case of over capitalization.