Question 1

Which of the following factors does not influence a firm's dividend decision?

Accepted Answer

A) A desire to have good investor relations. 
B) Cash available to pay a dividend. 
C) Wanting to reduce paid-up capital. 
D) The need for finance for an investment. 
A) A desire to have good investor relations. 
B) Cash available to pay a dividend. 
C) Wanting to reduce paid-up capital. 
D) The need for finance for an investment.

Question 2

Which report is specifically designed to provide an assessment of the credibility and reliability of the financial statements a company issues for external use?

Accepted Answer

A) audit report. 
B) director's statement. 
C) director's report. 
D) trustee statement. 
A) audit report. 
B) director's statement. 
C) director's report. 
D) trustee statement.

Question 3

The offer of new shares to existing shareholders at no cost, in proportion to the amount of their current holding, is known as:

Accepted Answer

A) a preference issue. 
B) a bonus issue. 
C) an option. 
D) a rights issue. 
A) a preference issue. 
B) a bonus issue. 
C) an option. 
D) a rights issue.

Question 4

Under the Corporations Act 2001, a proprietary (Pty Ltd)company is restricted to a maximum of:

Accepted Answer

A) 100 shareholders. 
B) 2 shareholders. 
C) 50 shareholders. 
D) 10 shareholders. 
A) 100 shareholders. 
B) 2 shareholders. 
C) 50 shareholders. 
D) 10 shareholders.

Question 5

The shareholders' equity section in a statement of financial position may include which of the following accounts?

Accepted Answer

A) Retained profits. 
B) Share capital. 
C) Reserves. 
D) All of the above. 
A) Retained profits. 
B) Share capital. 
C) Reserves. 
D) All of the above.

Question 6

An audit fee expense will most likely be found in the statement of financial performance for a:

Accepted Answer

A) sole proprietorship. 
B) partnership. 
C) company. 
D) Both B and C. 
A) sole proprietorship. 
B) partnership. 
C) company. 
D) Both B and C.

Question 7

Which of these is a disadvantage of a country adopting international accounting standards compared to the country developing its own standards?

Accepted Answer

A) Standards by their nature must be general and involve compromises. 
B) It will increase accounting and reporting costs for multinational companies. 
C) It will reduce the comparability of different countries' financial reports. 
D) All are disadvantages. 
A) Standards by their nature must be general and involve compromises. 
B) It will increase accounting and reporting costs for multinational companies. 
C) It will reduce the comparability of different countries' financial reports. 
D) All are disadvantages.

Question 8

If the tax rate is 30%, interest expense is $15,000 and operating profit is $82,000, what is the profit for the year?

Accepted Answer

A) $63,000. 
B) $44,100. 
C) $46,900 
D) None of the above. 
A) $63,000. 
B) $44,100. 
C) $46,900 
D) None of the above.

Question 9

Which of the following statements is correct?

Accepted Answer

A) Most companies see retained profits as the least likely source of finance. 
B) The law quite clearly specifies the size of the non-distributable portion of capital a firm must hold back. 
C) Preference capital redeemed by a company is always held in retained profits. 
D) A company is not allowed to acquire and hold its own shares. 
A) Most companies see retained profits as the least likely source of finance. 
B) The law quite clearly specifies the size of the non-distributable portion of capital a firm must hold back. 
C) Preference capital redeemed by a company is always held in retained profits. 
D) A company is not allowed to acquire and hold its own shares.

Question 10

A bonus issue of shares by a company will:

Accepted Answer

A) increase total shareholders' equity. 
B) sometimes increase shareholders' equity and sometimes leave it unchanged. 
C) leave total shareholders' equity unchanged. 
D) reduce total shareholders' equity. 
A) increase total shareholders' equity. 
B) sometimes increase shareholders' equity and sometimes leave it unchanged. 
C) leave total shareholders' equity unchanged. 
D) reduce total shareholders' equity.

Question 11

Which item(s)can be a component of shareholders' equity?

Accepted Answer

A) Retained profits. 
B) Share capital. 
C) Reserves. 
D) All of the above. 
A) Retained profits. 
B) Share capital. 
C) Reserves. 
D) All of the above.

Question 12

Which of the following is unlikely to be a reserve found in a company's statement of financial position?

Accepted Answer

A) Asset replacement. 
B) Foreign currency. 
C) Acquisition. 
D) All of the above are likely to be found. 
A) Asset replacement. 
B) Foreign currency. 
C) Acquisition. 
D) All of the above are likely to be found.

Question 13

Which statement concerning a rights issue is true?

Accepted Answer

A) The issue is often made to ensure that new shareholders are brought into the company. 
B) The shares are generally offered at above the current market price of the existing shares. 
C) The cost of the issue tends to be less than making a share issue to the general public. 
D) Both A and C. 
A) The issue is often made to ensure that new shareholders are brought into the company. 
B) The shares are generally offered at above the current market price of the existing shares. 
C) The cost of the issue tends to be less than making a share issue to the general public. 
D) Both A and C.

Question 14

The company 'Raider Limited' must be:

Accepted Answer

A) a proprietary company. 
B) a public company. 
C) a private company. 
D) none of the above. 
A) a proprietary company. 
B) a public company. 
C) a private company. 
D) none of the above.

Question 15

Which type of company has the right to raise money from the general public?

Accepted Answer

A) proprietary company. 
B) public company. 
C) private company. 
D) all of the above. 
A) proprietary company. 
B) public company. 
C) private company. 
D) all of the above.

Question 16

A share issue where the company gives existing shareholders the first right of refusal of the issue is:

Accepted Answer

A) an ordinary issue. 
B) a bonus issue. 
C) a rights issue. 
D) a preference issue. 
A) an ordinary issue. 
B) a bonus issue. 
C) a rights issue. 
D) a preference issue.

Question 17

Limited liability means:

Accepted Answer

A) the liability of shareholders for company debts is normally limited to the amount they have paid for their shares. 
B) the liability of directors for company debts is limited. 
C) if the company fails, the creditors may have to bear greater losses than if they were dealing with a non-company. 
D) Both A and C. 
A) the liability of shareholders for company debts is normally limited to the amount they have paid for their shares. 
B) the liability of directors for company debts is limited. 
C) if the company fails, the creditors may have to bear greater losses than if they were dealing with a non-company. 
D) Both A and C.

Question 18

Which type of company operating under the Corporations Act 2001 must have the words Proprietary Limited (Pty Ltd)after its name?

Accepted Answer

A) Proprietary company. 
B) No liability company. 
C) Company listed on the stock exchange. 
D) Public company. 
A) Proprietary company. 
B) No liability company. 
C) Company listed on the stock exchange. 
D) Public company.

Question 19

Which of these is not a consequence of the status of a company as a separate legal entity?

Accepted Answer

A) The right to retain profits. 
B) The obligation to pay taxation. 
C) The right to enter into contracts in its own name. 
D) None of the above, i.e., all are consequences of the status of a company as a separate legal entity. 
A) The right to retain profits. 
B) The obligation to pay taxation. 
C) The right to enter into contracts in its own name. 
D) None of the above, i.e., all are consequences of the status of a company as a separate legal entity.

Question 20

The shareholders are the owners of a company. The shareholders' equity of Adventure Travel Agency Pty Ltd is set out below. (Note that all shares were issued when the company was originally set up and there have been no subsequent issues.)
Adventure Travel Agency Pty Ltd
Statement of Financial Position (extract) as at 30 June 2018
Shareholders' equity
Share Capital -
$\begin{array} { l r } 60,000 \text { ordinary shares sold for } \$ 10 \text { each } & \$ 600,000 \ \text { Retained profits } & 20,000 \ \text { General reserve } & 12,000 \ \text { Asset revaluation reserve } & \underline { 180,000 } \ \text { Total equity } & \underline { \$ 812,000 } \end{array}$
REQUIRED:
a)Briefly explain the meaning of each of the four components of shareholders' equity, giving an example of how each might have arisen.
b)Indicate which of the four components are legally available for the payments of cash dividends.

Accepted Answer

a)Share capital is the cash contributed

Which of the following factors does not influence a firm's dividend decision?

Which report is specifically designed to provide an assessment of the credibility and reliability of the financial statements a company issues for external use?

The offer of new shares to existing shareholders at no cost, in proportion to the amount of their current holding, is known as:

Under the Corporations Act 2001, a proprietary (Pty Ltd)company is restricted to a maximum of:

The shareholders' equity section in a statement of financial position may include which of the following accounts?

An audit fee expense will most likely be found in the statement of financial performance for a:

Which of these is a disadvantage of a country adopting international accounting standards compared to the country developing its own standards?

If the tax rate is 30%, interest expense is $15,000 and operating profit is $82,000, what is the profit for the year?

Which of the following statements is correct?

A bonus issue of shares by a company will:

Which item(s)can be a component of shareholders' equity?

Which of the following is unlikely to be a reserve found in a company's statement of financial position?

Which statement concerning a rights issue is true?

The company 'Raider Limited' must be:

Which type of company has the right to raise money from the general public?

A share issue where the company gives existing shareholders the first right of refusal of the issue is:

Limited liability means:

Which type of company operating under the Corporations Act 2001 must have the words Proprietary Limited (Pty Ltd)after its name?

Which of these is not a consequence of the status of a company as a separate legal entity?

Introduction to Accounting

Measuring and Reporting Financial Position

Measuring and Reporting Financial Performance

Regulatory Framework for Companies

Measuring and Reporting Cash Flows

Corporate Social Responsibility and Sustainability Accounting

Analysis and Interpretation of Financial Statements

Cost-Volume-Profit Analysis and Relevant Costing

Full Costing

Budgeting

Capital Investment Decisions

The Management of Working Capital

Financing the Business

Filters

Exam 4: Introduction to Limited Companies

Which of the following factors does not influence a firm's dividend decision?

Which report is specifically designed to provide an assessment of the credibility and reliability of the financial statements a company issues for external use?

The offer of new shares to existing shareholders at no cost, in proportion to the amount of their current holding, is known as:

Under the Corporations Act 2001, a proprietary (Pty Ltd)company is restricted to a maximum of:

The shareholders' equity section in a statement of financial position may include which of the following accounts?

An audit fee expense will most likely be found in the statement of financial performance for a:

Which of these is a disadvantage of a country adopting international accounting standards compared to the country developing its own standards?

If the tax rate is 30%, interest expense is $15,000 and operating profit is $82,000, what is the profit for the year?

Which of the following statements is correct?

A bonus issue of shares by a company will:

Which item(s)can be a component of shareholders' equity?

Which of the following is unlikely to be a reserve found in a company's statement of financial position?

Which statement concerning a rights issue is true?

The company 'Raider Limited' must be:

Which type of company has the right to raise money from the general public?

A share issue where the company gives existing shareholders the first right of refusal of the issue is:

Limited liability means:

Which type of company operating under the Corporations Act 2001 must have the words Proprietary Limited (Pty Ltd)after its name?

Which of these is not a consequence of the status of a company as a separate legal entity?

Introduction to Accounting

Measuring and Reporting Financial Position

Measuring and Reporting Financial Performance

Regulatory Framework for Companies

Measuring and Reporting Cash Flows

Corporate Social Responsibility and Sustainability Accounting

Analysis and Interpretation of Financial Statements

Cost-Volume-Profit Analysis and Relevant Costing

Full Costing

Budgeting

Capital Investment Decisions

The Management of Working Capital

Financing the Business

Filters