Term 2 SFQ & MCQ's Tutorial 6-9 Flashcards
Profits of a limited liability company are shared by:
The shareholders
Under what heading should ‘£1 ordinary share capital’ be shown in a company’s Statement of Financial Position?
Equity
What are differences between sole traders and limited liability companies?
- a sole trader’s financial statements are private; a company’s financial statements are sent to shareholders and may be publically filed
- a sole trader is fully and personally liable for any losses that the business might make; a company’s shareholders are not personally liiable for any losses that the company might make
A share premium is
The difference between the nominal value and the selling price
Jones Ltd has an authorised share capital of 200,000 50p ordinary shares, an issued share capital of 170,000 50p shares issued at a price of 70p. The current market value of the sharies is 90p.
What figure should be included in the statement of financial position under the heading ‘share premium account’?
£34,000
(170,000 x £0.20)
What forms part of the equity capital of a limited company?
Ordinary share capital
Share premium
Revaluation reserve
Ivan plc issued 1,000,000 25p ordinary shares at £1.10 each for cash. What should the accounting entries be to record this issue?
Dr Cr
£ £
Cash 1,100,000
Share capital 250,000
Share premium 850,000
Yuac plc issued 100,000 ordinary shares having a nominal value of 50p each at a price of £2,50 each. The share premium account will show:
£200,000
(100,000 x £2)
In the Statement of financial position of a public limited company, the amount paid up on ordinary shares is included under the heading of:
Equity
Which of the following statements are correct?
a company might have a rights issue if it wished to raise more equity capital
a rights issue might increase the share premium account whereas a bonus issue is likely to reduce it
a bonus issue will reduce the equity capital of a company
a rights issue will always increase the number of shareholders in a company whereas a bonus issue will not
a company might have a rights issue if it wished to raise more equity capital
a rights issue might increase the share premium account whereas a bonus issue is likely to reduce it
At 31 Dec 2011, the capital structure of a company was as follows: £
100,000 50p ordinary shares 50,000
Share premium account 180,000
During 2012, the company made a bonus issue of 1 share for every 2 held, using the share premium account for the purpose.
It also issued another 60,000 shares at 80p per share for cash.
What is the company’s capital structure at 31 Dec 2012?
Ordinary share capital Share premium
£ £
105,000 173,000
Shares £shares £SP Bal b/f 100,000 50,000 180,000 Bonus issue (100,000/2) _ 50,000_ _25,000_ _(25,000)_
150,000 75,000 155,000 New issue 60,000 (60,000x50p) 30,000 (60,000x 30p) _ _ _ _ _ 18,000_
210,000 105,000 173,000
At 31 Dec 2011, a company’s capital structure was as follows: £
500,000 25p ordinary shares 125,000
Share premium account 100,000
In the year ended 31 Dec 2012, the company made a rights issue of 1 share for every 2 shares held at £1 per share.
Later in the year, the company made a bonus issue of 1 share for every 5 held, using the share premium account for the purpose.
What was the company’s capital structure at 31 Dec 2012?
Ordinary share capital Share premium account
£ £
225,000 250,000
Shares £shares £SP Bal/b/f 500,000 125,000 100,000 Rights issue (500,000/2) 250,000 SC 250,000x25p 62,500 SP 250,000 x 75p _ _ _ _ _187,500_
750,000 187,500 287,500 Bonus issue (750,000/5) 150,000 150,000 x 25 p _ _ _ 37,500 _ _(37,500)_
900,000 225,000 250,000
What does the difference between the purchase consideration and net tangilble asset value represent?
Goodwill
What does the difference between the purchase consideration and the nominal value of the equity shares represent?
Share premium
What is the meaning of the phrase ‘do not rank for dividend’?
Shares not yet entitled to dividend
What is the most likely explanation for a company to have redeemed existing preference shares but at the same time to have issued others?
Replacing higher rate dividend shares with lower rate ones
What is the difference in accounting treatment in the Statement of comprehensive income of the interest due on the debentures with dividends paid on the ordinary shares? Why is there a difference?
Debenture interest – an expense in the SCI account
Declared dividends – an appropriation of profit
Reason: debenture holders external lenders while shareholders are internal owners
In a limtied companies Statement of financial position the equity shareholder’s interest includes which one of the following?
Issued redeemable preference shares
Issued ordinary share capital
Dividends paid to ordinary shareholders
Debenture stock
Issued ordinary share capital
Saturn Ltd has the following issued share capital:
£20,000 ordinary shares of 50p each
£10,000 5% £1 preference shares
An ordinary dividend of 5p per share was paid during the year ended 31 Dec 2012. What is the total amount of dividends payable?
£
40,000 shares x 5p 2,000
10,000 x 5% _ 500_
2,500
Revenue reserves are:
Accumulated and undistributed profits of a company
A company has issued share capital of 60,000 £1 ordinary shares fully paid. If a dividend of 30p per share was paid, it will amount to:
60,000 x 30p = £18,000
A particular source of finance has the following characteristics: a fixed return, a fixed repayment date, it is secured and the return is classified as an expense.
What is this source of finance?
Debenture
A company has issued share capital of 800,000 £1 ordinary shares at a premium of 50p each, this raising capital of £1,200,000.
The directors are considering allocating £120,000 for dividend payments.
This represents a dividend of:
£120,000/800,000 = 15p per share
A company has £100,000 ordinary shares at a par value of 10p each and 100,000 4% irredeemable preference shares at a par value of 50p each. The directors declare a dividend of 3p per ordinary share.
The total amount to be paid out in dividends is:
£100,000/10p = 1,000,000 shares x 3p = £30,000
Prefs £50,000 x 4% £2,000
£32,000
A company has issued share capital of 100,000 25p ordinary shares. An interim dividend of 6p per share has already been paid and the directors declare a final dividend of 8p per share.
What is the total amount of dividends payable?
Interim paid 100,000 x 6p £ 6,000
Declared 100,000 x 8p £ 8,000
£14,000
Does the interest on a company’s debentures have to be paid when there is no profit?
& is it a Dr or Cr to the Statement of comprehensive income?
Must be paid even if there is no profit, and is debited to the Statement of comprehensive income
Should dividends paid appear on the face of a company’s statement of comprehensive income?
No
Which of the following should appear in a company’s statement of changes in equity?
Profit for the year
Dividends paid
Surplus on revluation of non-current assets
All of them
Which of the following items may appear in a company’s statement of changes in equity according to IAS 1 Presentation of financial statements?
Unrealised revluation gains
Profit for the period
Dividends paid
Proceeds of equity share issue
All of them
An extract from the Statement of cash flows as prepared by a trainee accountant is shown below:
Reconciliation of operation profit to net cash flow from operating activities
£m
Profit from operations 28
Depreciation charges (9)
Decrease in inventory 3
Increase in receivables (4)
Increase in payables _ (8)_
10
What mistakes have been made?
And what is the revised operating profit?
Depreciation charges should have been added, not deducted
Increase in payables should have been added, not deducted
10 + 8 + 9 = £27m
Which of the following items could appear in a company’s Statement of cash flows?
Proposed dividends
Rights issue of shares
Bonus issue of shares
Repayment of loan
Rights issue of shares
Repayment of loan
In the course of preparing a company’s Statement of cash flows, the following figures are to be included in the cash flows from operating activities:
£000
Depreciation charges 980
Profit on sale of non-current assets 40
Increase in inventory 130
Decrease in receivables 100
Increase in payables 80
What will the net affect of these items be in the Statement of cash flows?
Addition to opearting activities £990,000
(Dep’n) +980
(Profit on sale of N/C A) -40
(Inc. in Inv) -130
(Dec. in Rec) +100
(Inc. in Pay) +80
=990
A business can make a profit and yet have a reduction in its bank balance. Which one of the following might cause this to happen?
the sale of a non-current asset as a loss
the charging of dep’n in the SCI
the lengthening of the period of credit given to customers
the lengthening of the period of credit taken from supplies
the lengthening of the period of credit given to cutomers
A company sold a building at a profit. How will this transaction be treated in the company’s Statement of cash flows?
Proceeds of sale Profit on sale
cash inflow under deducting from profit in calculating
investing activities cash flow from operating activities
