This multiple-choice question is suitable for Accounting KS5 classes.
The answer is 3
Not correct
Not correct
Correct – Goodwill is the difference between the sum of the fair values of individual assets and liabilities and their purchase price. This difference can be either positive (in which case goodwill will be a debit balance) or negative (in which case goodwill will be a credit balance), depending on the purchase price.
In the case of a company which has issued both cumulative preference shares and ordinary shares, which of the following statements is true?
Select ONE answer:
If the dividend on the cumulative preference shares is not paid when due, an ordinary dividend cannot be paid until all arrears of the preference dividend have first been paid.
If the dividend on the cumulative preference shares for the current year is not paid when due, the company may pay an ordinary dividend next year once next year’s preference dividend is paid first.
A dividend must be paid on the ordinary shares before any dividend can be paid on the cumulative preference shares.
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
Correct – In respect of any particular accounting period, dividends on preference shares, whether cumulative or non-cumulative, must be paid before any dividend can be paid on ordinary shares. If the company is unable to pay the dividend due on preference shares, whether cumulative or non—cumulative, it cannot pay a dividend on ordinary shares. In the case of non- cumulative preference shares, the shareholder‘s right to receive a dividend lapses. However, in the case of cumulative preference shares, the shareholder’s right to receive a dividend does not lapse – and all such dividends must be paid before any dividend can be paid on ordinary shares in any future accounting period.
This multiple-choice question is suitable for Accounting KS5 classes.
The answer is 4
Not correct
Not correct
Not correct
Correct – The net assets of a company is the total of its assets less the total of its liabilities, that is, the total of the top part of the balance sheet. The (book value of the) shareholders’ interest in the company (shareholders’ funds) is the total of the (book value of the) capital contributed by them plus the company’s reserves. This is also equal to the total of the capital and reserves section (bottom part) of the balance sheet. Since the top and bottom parts of the balance sheet must agree, the total of the net assets of a company must be equal to the book value of the shareholders’ interest in the company.
Which of the following cannot normally be determined from the financial statements of a public limited company whose shares are quoted on the Stock Exchange?
Select ONE answer:
The nominal (par) value of the issued ordinary share capital of the company.
The book value of the company’s fixed assets.
The current market value of the issued ordinary share capital of the company.
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 3
Not correct – The nominal (par) value of the issued ordinary share capital of the company is shown in the capital and reserves section of the balance sheet.
Not correct – The (net) book value of the company’s fixed assets is shown in the fixed assets section of the balance sheet.
Correct – The market value of ordinary shares can change on a daily basis. Therefore, even if the market value at the end of the year was shown in the financial statements when they are being printed, this figure would be out of date by the time the financial statements were published. Therefore, while a market value could be shown in the financial statements, it cannot be the current market value.
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