Accounting Multiple Choice Question – 5 February 2021

A company has decided to redeem its preference shares at a premium of £0.25.

The preference shares were originally issued at £1.15 each.

Prior to the redemption the company’s Balance Sheet showed the following:

• Ordinary shares of £1  —  £1,000k
• 8% redeemable preference shares of £1  —  £600k
• Share premium  —  £100k
• Retained profit  —  £750k

How will the reserves appear in the Balance Sheet after the preference shares have been redeemed?

Select ONE answer:

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 – £1.25 * 600,000 = £750,000 so Retained Profit is reduced to zero, Capital Redemption = Value of existing preference shares.
2. Not correct
3. Not correct
4. Not correct

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