Deck 29: The Nature of Limited Companies and Their Capital

Question 1

Which of the following are not required before a company can commence trading?

A) Articles of association
B) Trading certificate
C) Financial statements
D) Certificate of incorporation

Answer 1

Financial statements

Question 2

Which of the following statements is most correct? The holder of a participating preference share is:

A) Entitled to repayment by the company on a fixed date and is entitled to receive a fixed annual dividend.
B) Entitled to a fixed annual dividend and in some instances can also get an additional dividend if the company performs well
C) Entitled to a fixed annual dividend that can be waived.
D) Entitled to a fixed annual dividend that can be waived, though must be paid for in future periods before dividends are distributed to equity holders

Answer 2

Entitled to a fixed annual dividend and in some instances can also get an additional dividend if the company performs well

Question 3

When a company goes into liquidation, which of the following best describes the order in which the stakeholders of the entity will be paid?

A) Employees, trade receivables, equity holders, debt holders
B) Equity holders, debt holders, trade receivables, employees
C) Employees, trade receivables, debt holders, equity holders
D) Debt holders, equity holders, trade receivables, employees

Answer 3

Employees, trade receivables, debt holders, equity holders

Question 4

Which of the following is not a required statutory book that has to be kept by incorporated companies?

A) Register of members
B) Register of directors and company secretary
C) Register of employees
D) Register of mortgages and other charges secured on the company's assets

Question 5

Which of the following does not appear under the heading 'Equity and Reserves' on a company's statement of financial position?

A) Revaluation surpluses
B) Retained profits
C) Proposed dividends
D) Share premium account

Question 6

Revenue reserves are:

A) Accumulated and undistributed profits of a company
B) Amounts set aside out of profits for future capital expenditure.
C) Amounts which cannot be distributed as dividends
D) Amounts set aside out of profits to replace revenue items

Question 7

Capital reserves are:

A) Accumulated and undistributed profits of a company
B) Amounts which cannot be distributed as dividends
C) Amounts set aside out of profits to replace revenue items
D) Amounts set aside out of profits for a specific purpose.

Question 8

The correct ledger entries to record the issue of 400,000 £1 equity shares at a premium of 20p, and
Paid for by cheque, in full, is:

A) Dr. Share capital account £400,000 Cr. Share premium account £80,000
Cr) Bank account £320,000
B) Dr. Bank account £480,000 Cr. Share capital account £400,000
Cr) Share premium account £80,000
C) Dr Share capital account £400,000 D. Share premium account £80,000
Cr) Bank account £480,000
D) Dr. Bank account £400,000 Dr. Share premium account £80,000
Cr) Share capital account £480,000

Question 9

When preparing financial statements in periods of inflation, directors

A) Need make no adjustments
B) Must increase asset values
C) Must reduce asset values
D) Must reduce dividends

Question 10

A set of financial statement that are signed of as showing a true and fair view have:

A) Been audited and found to be correct
B) Been audited and found to be free from error and fraud
C) Assets and liabilities that are recorded at their true values
D) Captured a fair reflection of the financial position of the entity, which is sufficient for users to make . proper economic decisions based on them.

Question 11

Which of the following is not part of the equity capital of a company?

A) Ordinary shares
B) Share premium
C) Revaluation reserve
D) Preference shares

Question 12

How a periods profit or loss has been allocated/distributed can be found in:

A) The equity capital account
B) The income statement
C) The reserves account
D) The statement of changes in equity

Question 13

Equity would decrease if:

A) A dividend was distributed
B) An amount was transferred to general reserves
C) An entity issued more share capital
D) An entity revalued assets upwards.

Question 14

Which of the listed sources of finance has the following characteristics?
A yearly cash outflow by the company is not mandatory The holder can vote at an AGM
The holder is entitled to receive a set of the company's published financial statements The source is the riskiest of all the sources listed from the investor's perspective.

A) Debenture capital
B) Equity share capital
C) Preference share capital
D) Bank loan

Question 15

A debenture is:

A) Equity capital of the company
B) Another name for preference share capital
C) A loan usually secured on the company's assets
D) A loan that is convertible into shares in the future

Question 16

Which of the listed sources of finance has the following characteristics?
A yearly cash outflow by the company to the holder is required. The yearly cash outflow is not tax deductible.

A) Debenture capital
B) Equity share capital
C) Preference share capital
D) Bank loan