Month: May 2020

Shareholders’ funds in a company equals . . .?

Select ONE answer:

1. the total of share capital, reserves and long-term debts of the company.
2. the total of share capital and revenue reserves of the company.
3. the total of issued share capital and reserves of the company.
4. the total of share capital and capital reserves of 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 3

1. Not correct
2. Not correct
3. Correct – The term ‘shareholders‘ funds’ means all of the money ‘owed’ by the company to its shareholders. This is the total of all money invested in the company by the shareholders (share capital) and all profits earned by the company (these profits are ‘owned‘ by the company, which in turn is owned by its shareholders) which is the total of the balance on the profit and loss account (profits retained) and the balance on all other reserve accounts (amounts debited in the profit and loss appropriation account and transferred into the balance sheet).
4. Not correct

 

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A company issued 20,000 25p ordinary shares at a premium of 20%.  The market value of these shares is currently 40p per share.

As a result of this issue, share capital. as shown in the balance sheet, will be increased by?

Select ONE answer:

1. £4,000
2. £5,000
3. £6,000
4. £8,000

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 – The share capital account is credited with the nominal (par) value of the shares issued = 20,000 shares Ca) 25p each = £5,000. The premium on the issue will be credited to the share premium account (shown separately from share capital in the capital and reserves section of the balance sheet). The market value of share capital is not shown in the balance sheet.
3. Not correct
4. Not correct

 

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The declaration of a dividend by a company . . . ?

Select ONE answer:

1. reduces the company‘s bank balance.
2. increases the company‘s liabilities.
3. increases the shareholders’ funds in the company.
4. does not affect the shareholders’ funds in the company.

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 – The company’s bank balance will not be reduced until the dividend is actually paid.
2. Correct – The declaration of a dividend means the announcement by the company of its intention to pay the dividend at some future date. Therefore, dividends are not paid for some time after they are declared. Consequently, at the time a dividend is declared it becomes an obligation to pay an amount of money at some future date ie. a liability. It is also shown as an appropriation of profit.
3. Not correct – One of the effects of a company declaring a dividend is to reduce its retained profit (the second is the creation of a current liability). As the balance on the profit and loss account is part of the company’s shareholders’ funds, a reduction in this balance will reduce the company’s shareholders’ funds.
4. Not correct – As for answer C above.

 

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A company has declared a final dividend for the year ended 31 March and proposes to pay it on 10 May.

Which of the following is the correct treatment of this item in the financial statements for the year ended 31 March?

Select ONE answer:

1. Show the amount of the dividend as an expense in the profit and loss account and as a current liability in the balance sheet.
2. Show the amount of the dividend as a deduction in the profit and loss appropriation account and as a current liability in the balance sheet.
3. Show the amount of the dividend as a deduction in the profit and loss appropriation account and reduce the bank balance shown in the balance sheet accordingly.
4. None of the above.

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 – A dividend is an appropriation of profit, not an expense.
2. Correct – Dividends are a share of profit not an expense. As the dividend is not yet paid but will be paid within one year it is a current liability.
3. Not correct – The bank balance won’t be reduced until the dividend is paid.
4. Not correct

 

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A dividend is . . .?

Select ONE answer:

1. a share of a company‘s profit.
2. interest paid on a company‘s borrowings.
3. always paid to banks and other creditors.
4. None of the above.

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 – Dividends are paid by companies to their shareholders (both owners of ordinary shares and owners of preference shares, where applicable) as a return on the investment they have made in the company.
2. Not correct – Interest paid by a company on its borrowings is an expense which is deducted when calculating profit whereas dividends are an appropriation of the profit earned by a company.
3. Not correct – Dividends may be paid by a company to banks and other creditors, but only if they are shareholders in the company.
4. Not correct

 

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