{"id":47649,"date":"2024-04-15T22:29:48","date_gmt":"2024-04-15T22:29:48","guid":{"rendered":"https:\/\/exam.pscnotes.com\/mcq\/?p=47649"},"modified":"2024-04-15T22:29:48","modified_gmt":"2024-04-15T22:29:48","slug":"which-of-the-following-is-the-reason-for-decapitalization","status":"publish","type":"post","link":"https:\/\/exam.pscnotes.com\/mcq\/which-of-the-following-is-the-reason-for-decapitalization\/","title":{"rendered":"Which of the following is the reason for decapitalization?"},"content":{"rendered":"

[amp_mcq option1=”Company raises more capital than required” option2=”Company commissioner buys assets at higher price” option3=”Company has not provided adequate depreciation on assets” option4=”Company has reinvested a large part of its excess projects” correct=”option4″]<\/p>\n

The correct answer is D. Company has reinvested a large part of its excess projects.<\/p>\n

Decapitalization is the reduction of a company’s capital. This can happen for a number of reasons, such as when a company sells assets, pays down debt, or repurchases shares. Decapitalization can also occur when a company’s assets decrease in value.<\/p>\n

Option A is incorrect because raising more capital than required does not necessarily lead to decapitalization. If the company uses the additional capital to invest in new projects or to repay debt, then its capital will not be reduced.<\/p>\n

Option B is incorrect because buying assets at a higher price does not necessarily lead to decapitalization. If the company uses the assets to generate income, then its capital will not be reduced.<\/p>\n

Option C is incorrect because not providing adequate depreciation on assets does not necessarily lead to decapitalization. If the company uses the depreciation expense to reduce its tax liability, then its capital will not be reduced.<\/p>\n

Therefore, the correct answer is D. Company has reinvested a large part of its excess projects. This can lead to decapitalization because the company is not using the excess cash to maintain its capital structure.<\/p>\n","protected":false},"excerpt":{"rendered":"

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