Category: Accounting

A company has issued £1 000 000 of 8 % convertible loan stock, which the holder can convert in November 2007 into ordinary shares at a rate of 1 share for each £2.00 of loan stock held.

What is the correct presentation in the final accounts for the year ended 31 December 2004?

Select ONE answer:

1. Balance Sheet – Long Term loan £1 000 000 & Profit and Loss – Dividend £80 000
2. Balance Sheet – Long Term loan £1 000 000 & Profit and Loss – Loan Interest £80 000
3. Balance Sheet – Ordinary Share Capital £500 000 & Profit and Loss – Dividend £40 000
4. Balance Sheet – Ordinary Share Capital £500 000 & Profit and Loss – Loan Interest £40 000

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
3. Not correct
4. Not correct

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

The summarised Balance Sheet of a sole trader shows:

• fixed assets – £200 000
• net current assets – £10 000
• capital – £210 000

He agrees to sell his business to a limited company. The purchase consideration is £260 000 being made up of £60 000 cash, £80 000 debentures and 180 000 ordinary shares of £0.50 each.

Which amount will be credited to the share premium account of the limited company?

Select ONE answer:

1. £30 000
2. £50 000
3. £90 000
4. £120 000

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 – £60,000 + £80,000 + (180,000 * £0.5) = £230,000 ==> £260k – £230k = £30k
2. Not correct
3. Not correct
4. Not correct

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

A limited company purchases a business by issuing 320 000 ordinary shares of £1.00 each at a premium of £0.75 per share.

Goodwill of £150 000 arises on the purchase.

What is the fair value of the separable net assets?

Select ONE answer:

1. £170 000
2. £410 000
3. £560 000
4. £710 000

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 – 320,000 * £1.75 – £150,000 = £410,000
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.

When may a company issue redeemable preference shares?

Select ONE answer:

1. when it has already issued non-redeemable debentures
2. when it has already issued non-redeemable shares
3. when it has already redeemed its debentures
4. when it has sufficient reserves to fund the issue

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
3. Not correct
4. Not correct

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