The total of the net assets of a company is equal to . . . ?
Select ONE answer:
- The nominal (par) value of the company‘s share capital.
- The market value of the company’s share capital.
- The amount paid by shareholders for their shares.
- The book value of the shareholders’ interest in the company.
Show your workings to arrive at your answer, and explain and justify your reasons:
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This multiple-choice question is suitable for Accounting KS5 classes.
The answer is 4
- Not correct
- Not correct
- Not correct
- Correct – The net assets of a company is the total of its assets less the total of its liabilities, that is, the total of the top part of the balance sheet. The (book value of the) shareholders’ interest in the company (shareholders’ funds) is the total of the (book value of the) capital contributed by them plus the company’s reserves. This is also equal to the total of the capital and reserves section (bottom part) of the balance sheet. Since the top and bottom parts of the balance sheet must agree, the total of the net assets of a company must be equal to the book value of the shareholders’ interest in the company.
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