The Multiple Choice Questions Blog

A limited company‘s revenue reserves increased from £15,000 at 1 January to £31,000 at 31 December.

If the company earned a profit for the year of £27,000, after tax dividends for the year were?

Select ONE answer:

1. £4,000
2. £11,000
3. £12,000
4. £45,000

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 – Earning a profit will increase revenue reserves while paying (or proposing) dividends will reduce revenue reserves.  Therefore, revenue reserves at 31 December = revenue reserves at 1 January + profit – dividends.  Therefore, £31,000 = £15,000 + £27,000 – dividends.  Therefore, dividends = £11,000.
3. Not correct
4. Not correct

    

 

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A company has the following capital structure:

Authorised       Issued

25p 4% Preference shares          £400,000            £100,000
£2 Ordinary shares                      £500,000            £200,000

If the company declares a dividend of 10p per ordinary share, the total dividend payable by the company will be?

Select ONE answer:

1.  £14,000
2. £26,000
3. £54,000
4. £66,000

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 – Preference dividend = £100,000 * 4% = £4,000 + Ordinary dividend = 100,000 shares * 10p each = £10,000.  Therefore, (100,000 shares = £200,000 / £2 nominal (par) value) = £14,000
2. Not correct
3. Not correct
4. Not correct

 

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A company wishes to pay the maximum possible ordinary dividend in respect of a year during which it earned a net profit after tax of £26,600.

The company has issued 20.000 £1 8% preference shares and 50,000 £1 ordinary shares.

If £5,000 is to be transferred to the general reserve, what ordinary dividends are to be paid, in percentage terms?

Select ONE answer:

1. 10%
2. 20%
3. 40%
4. 60%

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
4. Not correct

    

Answer 3

Profit after tax                                                        £26,600
Preference dividend (£20000 * 8%)                   – £1,600
                                                                                  £25,000
Transfer to general reserve                                – £5,000
Profit available to pay ordinary dividend       £20,000

As £20,000 is available for the payment of the dividend on the ordinary shares and the company wishes to pay the maximum possible dividend, £20,000 will be paid.

£20.000 dividend / £50,000 issued ordinary share capital = 40% ordinary dividend.

 

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If a company makes a transfer from its profit and loss account to a capital reserve . . .?

Select ONE answer:

1. shareholders’ funds will be increased.
2. the relevant amount of money will be transferred to a special bank account.
3. shareholders’ funds will be decreased.
4. shareholders’ funds will remain unchanged.

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 4

1. Not correct
2. Not correct
3. Not correct
4. Correct – The balance on the profit and loss account (part of shareholders’ funds) will be reduced and the balance on the capital reserve account (also part of shareholders’ funds) will be increased by the same amount.

 

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Shareholders’ funds in a company equals . . .?

Select ONE answer:

1. the total of share capital, reserves and long-term debts of the company.
2. the total of share capital and revenue reserves of the company.
3. the total of issued share capital and reserves of the company.
4. the total of share capital and capital reserves of the company.

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 – The term ‘shareholders‘ funds’ means all of the money ‘owed’ by the company to its shareholders. This is the total of all money invested in the company by the shareholders (share capital) and all profits earned by the company (these profits are ‘owned‘ by the company, which in turn is owned by its shareholders) which is the total of the balance on the profit and loss account (profits retained) and the balance on all other reserve accounts (amounts debited in the profit and loss appropriation account and transferred into the balance sheet).
4. Not correct

 

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