Day: February 13, 2021

A company has an authorised share capital of 1.5 m ordinary shares at £1.00 each.

One million shares have been issued and have a market value of £4.50 per share. The directors are proposing a dividend of £0.10 per share for the year.

The year-end results are as follows:

• profits before tax  —  £180,000
• taxation  —  (£40,000)
• profits after tax  — £140,000 

What is the dividend cover?

Select ONE answer:

1. 0.9 times
2. 1.2 times
3. 1.4 times
4. 1.8 times 

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 – 1,000,000 * £0.10 = £100k ==> £140k / £100k = 1.4
4. Not correct

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