Month: February 2021

Y Ltd purchases the business of J Brown by issuing £1 shares at a premium of £0.20.

Y Ltd agrees to take over J Brown’s assets and liabilities at the date of the acquisition as follows.

Goodwill is valued at £10,000.

How many shares will J Brown receive from Y Ltd?

Select ONE answer:

1. 158,000
2. 175,000
3. 200,000
4. 210,000

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 – (£150k + £75k – £5K – £20k + £10k) ==> £210k / £1.20
3. Not correct
4. Not correct

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

When the business of X was purchased by Y plc, negative Goodwill of £100,000 arose.

The following table shows an extract of X’s Balance Sheet at the purchase date.

What was the purchase price of X?

Select ONE answer:

1. £300,000
2. £500,000
3. £600,000
4. £700,000

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 – £450k – £50k = £400k – £100k = £300k
2. Not correct
3. Not correct
4. Not correct

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

A company purchases a business with net assets of £110,000. In addition, the Goodwill of the business is valued at £10,000.

The purchase price of the business is settled by the issue of 80,000 £1 ordinary shares in the company. 

What will be the entry in the company’s Share Premium account?

Select ONE answer:

1. debit £40,000
2. credit £40,000
3. debit £30,000
4. credit £30,000

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 – £110k + £10k – £80k = £40k credit
3. Not correct
4. Not correct

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

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

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

Why might a company repay part of its share capital? 

Select ONE answer:

1. Its cash reserves exceed its requirements for the foreseeable future.
2. Its shareholders need the cash.
3. Its shares are valued below their nominal value on the open market.
4. It wishes to decrease its gearing.

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
2. Not correct
3. Not correct
4. Not correct

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