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    Question

    Which of the following is NOT an indicator of over

    capitalization?
    A Capital invested in a business exceeds the real value of its assets Correct Answer Incorrect Answer
    B Earnings are not justified by the amount of capitalization Correct Answer Incorrect Answer
    C The future earnings are underestimated at the time of promotion Correct Answer Incorrect Answer
    D A business has more net assets than it requires Correct Answer Incorrect Answer

    Solution

    Overcapitalization refers to a situation wherein the value of a company's capital is worth more than its total assets. As such when future earnings are underestimated, the value of capital is lower than its total asset and is therefore not an indicator of over capitalisation.

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