Day: March 22, 2023

Alex plc’s SOFP showed the following:

• net assets – £10M
• £1 ordinary shares – £5M
• Retained earnings – £5M

The company intends to purchase one million of its own shares at a price of £1.50 per share.

What is the value of the resulting balance on retained earnings AFTER the purchase?

Select ONE answer:

1. £3.5 million
2. £4.0 million
3. £4.5 million
4. £5.0 million

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 – 1M * £1.5 each = £1.5M == > Dr Shares £1M Dr Retained Earnings £0.5M Cr Cash £1.5M
4. Not correct

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