Tag: KS3

Alex plc’s capital is made up as follows:

• ordinary shares of £1.00 each – £200,000
• share premium account – £80,000
• Retained profits – £160,000

Changes now to be made (in the order given):

• A one for one bonus issue
• A rights issue of 100 000 ordinary shares of £1.00 each at £1.40 per share

The company wishes to maximise the amounts available to pay dividends.

What will be the ordinary capital and reserves of the company?

Select ONE answer:

1. ordinary share capital £500,000 and share premium £40,000 and Retained profits £40,000
2. ordinary share capital £500,000 and share premium £80,000 and Retained profits £NIL
3. ordinary share capital £540,000 and share premium £NIL and Retained profits £40,000
4. ordinary share capital £540,000 and share premium £40,000 and Retained profits £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 1

1. Correct – a. Dr Share Premium Account £80,000 Dr Retained profits £120,000 Cr Share Capital £200,000 PLUS b. Dr Cash £140,000 Cr Share Capital £100,000 Cr Share Premium £40,000
2. Not correct
3. Not correct
4. Not correct

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