Tag: A-Level

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

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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.

What type of capital must all limited companies have?

Select ONE answer:

1. convertible loan stock
2. debentures
3. ordinary shares
4. preference shares

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. Correct
4. Not correct

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

A company converts £2,000,000 debenture stock into £0.50 ordinary shares.

The conversion rate is 40 ordinary shares per £100 debenture stock.

What amount is credited to the Share Premium account?

Select ONE answer:

1. £800,000
2. £1,000,000
3. £1,200,000
4. £1,600,000

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 4

1. Not correct
2. Not correct
3. Not correct
4. Correct – £2,000,000 / £100 = 20,000 * 40 = 800,000 / 2 = £400,000 ==> £2M – £0.4M = £1.6M Premium

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

What is an advantage of using pay back method of capital investment appraisal? 

Select ONE answer:

1. calculates higher purchase instalments
2. calculates profitability
3. determines the efficiency of a process
4. evaluates risk

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

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