Month: May 2020

The authorised share capital of a company is comprised of £150,000 of 50p ordinary shares and 50,000 6% preference shares of £1 each.  Ordinary shares with a nominal (par) value of £100,000 and all of the preference shares have been issued and are fully paid.

If the company pays the preference dividend and proposes to pay an ordinary dividend of 10p per share, then the total dividends payable by the company will be?

Select ONE answer:

1. £13,000
2. £18,000
3. £23,000
4. £33,000

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 3

1. Not correct
2. Not correct
3. Correct – Preference dividend is £50,000 * 6% = £3,000 + Ordinary dividend is 200,000 shares * 10p = £20,000 – Therefore, total is £23,000
4. Not correct

 

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A limited company‘s revenue reserves increased from £15,000 at 1 January to £31,000 at 31 December.

If the company earned a profit for the year of £27,000, after tax dividends for the year were?

Select ONE answer:

1. £4,000
2. £11,000
3. £12,000
4. £45,000

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 2

1. Not correct
2. Correct – Earning a profit will increase revenue reserves while paying (or proposing) dividends will reduce revenue reserves.  Therefore, revenue reserves at 31 December = revenue reserves at 1 January + profit – dividends.  Therefore, £31,000 = £15,000 + £27,000 – dividends.  Therefore, dividends = £11,000.
3. Not correct
4. Not correct

    

 

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A company has the following capital structure:

Authorised       Issued

25p 4% Preference shares          £400,000            £100,000
£2 Ordinary shares                      £500,000            £200,000

If the company declares a dividend of 10p per ordinary share, the total dividend payable by the company will be?

Select ONE answer:

1.  £14,000
2. £26,000
3. £54,000
4. £66,000

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 1

1. Correct – Preference dividend = £100,000 * 4% = £4,000 + Ordinary dividend = 100,000 shares * 10p each = £10,000.  Therefore, (100,000 shares = £200,000 / £2 nominal (par) value) = £14,000
2. Not correct
3. Not correct
4. Not correct

 

This work is licensed under a Creative Commons Attribution 4.0 International License.

A company wishes to pay the maximum possible ordinary dividend in respect of a year during which it earned a net profit after tax of £26,600.

The company has issued 20.000 £1 8% preference shares and 50,000 £1 ordinary shares.

If £5,000 is to be transferred to the general reserve, what ordinary dividends are to be paid, in percentage terms?

Select ONE answer:

1. 10%
2. 20%
3. 40%
4. 60%

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 3

1. Not correct
2. Not correct
3. Correct
4. Not correct

    

Answer 3

Profit after tax                                                        £26,600
Preference dividend (£20000 * 8%)                   – £1,600
                                                                                  £25,000
Transfer to general reserve                                – £5,000
Profit available to pay ordinary dividend       £20,000

As £20,000 is available for the payment of the dividend on the ordinary shares and the company wishes to pay the maximum possible dividend, £20,000 will be paid.

£20.000 dividend / £50,000 issued ordinary share capital = 40% ordinary dividend.

 

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If a company makes a transfer from its profit and loss account to a capital reserve . . .?

Select ONE answer:

1. shareholders’ funds will be increased.
2. the relevant amount of money will be transferred to a special bank account.
3. shareholders’ funds will be decreased.
4. shareholders’ funds will remain unchanged.

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 4

1. Not correct
2. Not correct
3. Not correct
4. Correct – The balance on the profit and loss account (part of shareholders’ funds) will be reduced and the balance on the capital reserve account (also part of shareholders’ funds) will be increased by the same amount.

 

This work is licensed under a Creative Commons Attribution 4.0 International License.