Question 1

Public companies must have at least five directors.

Accepted Answer

A) True 
 B)False  False

Question 2

Irridium Ltd had a share capital of 500 000 $1 ordinary shares fully paid.The company decided to make a new share issue of 100 000 $1 shares, payable in full on application.These shares had to be first offered to existing shareholders.Suppose that the issue was 90% subscribed by the existing shareholders by 31 January 2010, and that the other 10% of shareholders did not apply for any shares.The rights issue is non-renounceable.What would be the correct journal entry for the new issue?

Accepted Answer

A) 
$\begin{array}{llcc}
  \text { Dr Trust account  } &\$100000  \
 \text { Cr Bonus issue } &&\$100000\\
 \text { Dr Bonus issue } &\$ 10000\
 \text {Cr Forfeited shares reserve  } &&\$ 10000\
 \text {  } &\
 \text {  } &\
\end{array}$ 
B) 
$\begin{array}{lll}
\text { Dr Bank } & \$ 90000 & \
\text {  Cr Paid up capital—ordinary } & & \$ 90000 \

\end{array}$ 
C) 
$\begin{array}{llcc}
  \text {Dr Bank  } & \$100000 \
 \text {  Cr Paid up capital-ordinary} &&\$90000\
 \text {Cr   Non renounceable shares account} &&\$10000\

\end{array}$ 
D) 
$\begin{array}{llcc}
  \text { Dr Bank } &\$ 100000   \
 \text { Cr Allotment } && \$ 100000\
\end{array}$ 
A) 
$\begin{array}{llcc}
  \text { Dr Trust account  } &\$100000  \
 \text { Cr Bonus issue } &&\$100000\\
 \text { Dr Bonus issue } &\$ 10000\
 \text {Cr Forfeited shares reserve  } &&\$ 10000\
 \text {  } &\
 \text {  } &\
\end{array}$ 
B) 
$\begin{array}{lll}
\text { Dr Bank } & \$ 90000 & \
\text {  Cr Paid up capital—ordinary } & & \$ 90000 \

\end{array}$ 
C) 
$\begin{array}{llcc}
  \text {Dr Bank  } & \$100000 \
 \text {  Cr Paid up capital-ordinary} &&\$90000\
 \text {Cr   Non renounceable shares account} &&\$10000\

\end{array}$ 
D) 
$\begin{array}{llcc}
  \text { Dr Bank } &\$ 100000   \
 \text { Cr Allotment } && \$ 100000\
\end{array}$ B

Question 3

Broadbeach Ltd was registered on 28 December 20X0.Broadbeach Ltd has a financial year end of 31 March.On 29 December 20X0 it lodged a prospectus with ASIC inviting investors to acquire 3 000 000 shares.By the closing date of 28 February 20X1 applications for 9 000 000 shares had been received.During March 20X1 the directors allotted the 3 000 000 shares to the applicants in proportion to the number of shares originally applied for.The terms of the issue are as follows:
F1F1F1S1F1F1F10issue price of $10.00 per share
F1F1F1S1F1F1F10$4.00 payable on application
F1F1F1S1F1F1F10$4.00 payable on allotment
F1F1F1S1F1F1F10$1.00 payable on 30 June 20X1
F1F1F1S1F1F1F10$1.00 payable on 31 December 20X1
-How much cash would be held by Broadbeach Ltd in relation to this share issue at 28 February 20X1?

Accepted Answer

A) $36 000 000 
B) $12 000 000 
C) $90 000 000 
D) $4 000 000 
A) $36 000 000 
B) $12 000 000 
C) $90 000 000 
D) $4 000 000 A

Question 4

Public listed companies can issue up to 15% of their existing equity as new shares in a twelve month period, without making a regulated share offer.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements is incorrect?

Accepted Answer

A) proprietary companies can only make regulated share offers to employees or to existing shareholders 
B) unless exempted it is prohibited to advertise an unregulated offer of shares 
C) public companies can make unregulated share offers as long as they do not infringe the stock exchange listing rules 
D) unless exempted an unregulated share issue can not be made to more than 30 investors 
A) proprietary companies can only make regulated share offers to employees or to existing shareholders 
B) unless exempted it is prohibited to advertise an unregulated offer of shares 
C) public companies can make unregulated share offers as long as they do not infringe the stock exchange listing rules 
D) unless exempted an unregulated share issue can not be made to more than 30 investors

Question 6

A bonus issue

Accepted Answer

A) gives shareholders additional shares without requiring any payment 
B) always results in an increase in paid-up capital 
C) can not be paid from cancelled forfeited shares 
D) all of the above 
A) gives shareholders additional shares without requiring any payment 
B) always results in an increase in paid-up capital 
C) can not be paid from cancelled forfeited shares 
D) all of the above

Question 7

John wants to set up a proprietary company with only himself as director and himself and his wife as the only shareholders.This is:

Accepted Answer

A) not allowed under the Corporations Act, because the company must have at least 5 shareholders 
B) not allowed under the Corporations Act, because the company must have at least 2 directors 
C) allowed under the Corporations Act 
D) not allowed under the Corporations Act, because the company must have at least 2 directors and 5 shareholders 
A) not allowed under the Corporations Act, because the company must have at least 5 shareholders 
B) not allowed under the Corporations Act, because the company must have at least 2 directors 
C) allowed under the Corporations Act 
D) not allowed under the Corporations Act, because the company must have at least 2 directors and 5 shareholders

Question 8

Registration of a newly-formed company is done with the:

Accepted Answer

A) ASX 
B) AASB 
C) ASIC 
D) NCSC 
A) ASX 
B) AASB 
C) ASIC 
D) NCSC

Question 9

Broadbeach Ltd was registered on 28 December 20X0.Broadbeach Ltd has a financial year end of 31 March.On 29 December 20X0 it lodged a prospectus with ASIC inviting investors to acquire 3 000 000 shares.By the closing date of 28 February 20X1 applications for 9 000 000 shares had been received.During March 20X1 the directors allotted the 3 000 000 shares to the applicants in proportion to the number of shares originally applied for.The terms of the issue are as follows:
F1F1F1S1F1F1F10issue price of $10.00 per share
F1F1F1S1F1F1F10$4.00 payable on application
F1F1F1S1F1F1F10$4.00 payable on allotment
F1F1F1S1F1F1F10$1.00 payable on 30 June 20X1
F1F1F1S1F1F1F10$1.00 payable on 31 December 20X1
-Show the journal entries for the financial year ended 31 March 20X1 in relation to the refund for the oversubscribed shares, assuming that the company can apply applications to the allotment, but can not apply applications to calls in advance.

Accepted Answer

A) Accounts Debit $ Credit $ Bank Trust 24 000 000
Application 24 000 000 
B) Accounts Debit $ Credit $ Application 12 000 000
Bank Trust 12 000 000 
C) Accounts Debit $ Credit $ Bank Trust 12 000 000
Application 12 000 000 
D) Accounts Debit $ Credit $ Application 24 000 000
Bank Trust 24 000 000 
A) Accounts Debit $ Credit $ Bank Trust 24 000 000
Application 24 000 000 
B) Accounts Debit $ Credit $ Application 12 000 000
Bank Trust 12 000 000 
C) Accounts Debit $ Credit $ Bank Trust 12 000 000
Application 12 000 000 
D) Accounts Debit $ Credit $ Application 24 000 000
Bank Trust 24 000 000

Question 10

Strontium Ltd had owner's equity of 100 000 shares, issued and called up to $1 each, but there were calls in arrears of 20 cents per share on 5000 shares.These 5000 shares were forfeited.
What is the correct journal entry to reissue the shares at auction, as paid up to $1, supposing that a total of $4140 was obtained as auction proceeds.The company must refund any surplus to the original shareholder.

Accepted Answer

A) $\begin{array}{llcc}
  \text {  Dr Paid-up capital-forfeited shares} &\$ 5000   \
 \text {  Cr Bank  } &&\$ 4140\
 \text {Cr Paid up capital } &&\$ 9140\

\end{array}$ 
B) $\begin{array} { l r r } 
\text { Dr Paid-up capital-forfeited shares } & \$ 860 & \
\text { Dr Bank } & \$ 4140 & \
\text { Cr Paid up capital } & & \$ 5000 \
& & \
\text { Dr Paid-up capital-forfeited shares } & \$ 3160 & \
\text { Cr Bank } & & \$ 3160
\end{array}$ 
C) $\begin{array}{llcc}
  \text { Dr Bank } &\$ 4140  \
 \text {Cr Proceeds of sale of forfeited shares  } &&\$ 4140 \
 \text {  Dr Paid-up capital-forfeited shares} &\$ 4000\
 \text {Dr Proceeds of sale of forfeited shares   } &\$ 1000\
 \text { Cr Paid-up capital } &\$ 5000\
 \text {Dr Proceeds of sale of forfeited shares  } &\$ 3140\
 \text {  Cr Bank} &&\$ 3140\
\end{array}$ 
D) $\begin{array}{lll}
\text { Dr Bank } & \$ 5000 & \
\text { Cr Paid-up capital-forfeited shares } & & \$ 4000 \
\text { Cr Original shareholder } && \$ 1000
\end{array}$ 
A) $\begin{array}{llcc}
  \text {  Dr Paid-up capital-forfeited shares} &\$ 5000   \
 \text {  Cr Bank  } &&\$ 4140\
 \text {Cr Paid up capital } &&\$ 9140\

\end{array}$ 
B) $\begin{array} { l r r } 
\text { Dr Paid-up capital-forfeited shares } & \$ 860 & \
\text { Dr Bank } & \$ 4140 & \
\text { Cr Paid up capital } & & \$ 5000 \
& & \
\text { Dr Paid-up capital-forfeited shares } & \$ 3160 & \
\text { Cr Bank } & & \$ 3160
\end{array}$ 
C) $\begin{array}{llcc}
  \text { Dr Bank } &\$ 4140  \
 \text {Cr Proceeds of sale of forfeited shares  } &&\$ 4140 \
 \text {  Dr Paid-up capital-forfeited shares} &\$ 4000\
 \text {Dr Proceeds of sale of forfeited shares   } &\$ 1000\
 \text { Cr Paid-up capital } &\$ 5000\
 \text {Dr Proceeds of sale of forfeited shares  } &\$ 3140\
 \text {  Cr Bank} &&\$ 3140\
\end{array}$ 
D) $\begin{array}{lll}
\text { Dr Bank } & \$ 5000 & \
\text { Cr Paid-up capital-forfeited shares } & & \$ 4000 \
\text { Cr Original shareholder } && \$ 1000
\end{array}$

Question 11

Oceana Ltd issued 1 000 000 ordinary shares on 21 November 20X1 under the following terms:
Issue price: $2.50
Initial called up amount: $1.00
Call of $0.75 on 21 May 20X2
Final call of $0.75 on 21 November 20X2
Peter Smith was issued 10 000 shares and his friend Wilma Jones was issued 20 000 shares.
-On 21 May 20X2, Peter did not pay his call but all other shareholders did pay.At 30 June 20X2, Peter still had not paid.At 30 June 20X2, the:

Accepted Answer

A) paid-up amount of Oceana Ltd's capital is $742 500 
B) called-up amount of Oceana Ltd's capital is $750 000 
C) paid-up amount of Oceana Ltd's capital is $1 742 500 
D) paid-up amount and the called-up amount of Oceana Ltd's capital is $1 750 000 
A) paid-up amount of Oceana Ltd's capital is $742 500 
B) called-up amount of Oceana Ltd's capital is $750 000 
C) paid-up amount of Oceana Ltd's capital is $1 742 500 
D) paid-up amount and the called-up amount of Oceana Ltd's capital is $1 750 000

Question 12

An undersubscribed share issue must always be abandoned and the application monies returned.

Accepted Answer

A) True 
 B)False

Question 13

A preference share

Accepted Answer

A) may give the holder a divided based on a fixed percentage, provided there are sufficient profits 
B) always gives the holder preference to return of capital in the event of a liquidation 
C) always gives the holder the same voting rights as an ordinary share 
D) all of the above 
A) may give the holder a divided based on a fixed percentage, provided there are sufficient profits 
B) always gives the holder preference to return of capital in the event of a liquidation 
C) always gives the holder the same voting rights as an ordinary share 
D) all of the above

Question 14

Strontium Ltd had owner's equity of 100 000 shares, issued and called up to $1 each, but there were calls in arrears of 20 cents per share on 5000 of these shares.
What is the journal entry to forfeit the shares in arrears?

Accepted Answer

A) 
$\begin{array}{llcc}
  \text { Dr Paid up capital } &\$5000  \
 \text { Cr Call no. 1 } &&\$1000\
 \text { Cr Paid-up capital-forfeited shares } &&\$4000&\
 
\end{array}$ 
B) 
$\begin{array}{llcc}
  \text {Dr Paid up capital } & \$5000 \
 \text { Cr Paid-up capital -forfeited shares } && \$5000\
\end{array}$ 
C) 
$\begin{array}{lrr}
\text { Dr Paid up capital } & \$ 4000 & \
\text { Dr Call no. } 1 & \$ 1000 & \
\text { Cr Paid-up capital-forfeited shares } & \$ 5000
\end{array}$ 
D) 
$\begin{array}{llcc}
  \text {Cr Call no. 1 } & \$1000 \
 \text { Cr Paid-up capital-forfeited shares } && \$1000\
\end{array}$ 
A) 
$\begin{array}{llcc}
  \text { Dr Paid up capital } &\$5000  \
 \text { Cr Call no. 1 } &&\$1000\
 \text { Cr Paid-up capital-forfeited shares } &&\$4000&\
 
\end{array}$ 
B) 
$\begin{array}{llcc}
  \text {Dr Paid up capital } & \$5000 \
 \text { Cr Paid-up capital -forfeited shares } && \$5000\
\end{array}$ 
C) 
$\begin{array}{lrr}
\text { Dr Paid up capital } & \$ 4000 & \
\text { Dr Call no. } 1 & \$ 1000 & \
\text { Cr Paid-up capital-forfeited shares } & \$ 5000
\end{array}$ 
D) 
$\begin{array}{llcc}
  \text {Cr Call no. 1 } & \$1000 \
 \text { Cr Paid-up capital-forfeited shares } && \$1000\
\end{array}$

Question 15

Companies other than no-liability companies:

Accepted Answer

A) must provide a specially drafted constitution 
B) must have a memorandum of association 
C) may provide a specially drafted constitution or may use the Corporations Act's replaceable rules 
D) must provide articles of association 
A) must provide a specially drafted constitution 
B) must have a memorandum of association 
C) may provide a specially drafted constitution or may use the Corporations Act's replaceable rules 
D) must provide articles of association

Question 16

A prospectus will always guarantee a minimum return on investment for the prospective shareholder.

Accepted Answer

A) True 
 B)False

Question 17

Oceana Ltd issued 1 000 000 ordinary shares on 21 November 20X1 under the following terms:
Issue price: $2.50
Initial called up amount: $1.00
Call of $0.75 on 21 May 20X2
Final call of $0.75 on 21 November 20X2
Peter Smith was issued 10 000 shares and his friend Wilma Jones was issued 20 000 shares.
-Ignoring transactions costs, the total capital received by Oceana Ltd on 21 November 20X1 would be:

Accepted Answer

A) $2 500 000 
B) $1 500 000 
C) $1 000 000 
D) $750 000 
A) $2 500 000 
B) $1 500 000 
C) $1 000 000 
D) $750 000

Question 18

Broadbeach Ltd was registered on 28 December 20X0.Broadbeach Ltd has a financial year end of 31 March.On 29 December 20X0 it lodged a prospectus with ASIC inviting investors to acquire 3 000 000 shares.By the closing date of 28 February 20X1 applications for 9 000 000 shares had been received.During March 20X1 the directors allotted the 3 000 000 shares to the applicants in proportion to the number of shares originally applied for.The terms of the issue are as follows:
F1F1F1S1F1F1F10issue price of $10.00 per share
F1F1F1S1F1F1F10$4.00 payable on application
F1F1F1S1F1F1F10$4.00 payable on allotment
F1F1F1S1F1F1F10$1.00 payable on 30 June 20X1
F1F1F1S1F1F1F10$1.00 payable on 31 December 20X1
-Assume that all calls were paid on time.What journal entry should Broadbeach Ltd process for the initial applications?

Accepted Answer

A) 
$\begin{array} { l c c } 
\text { Accounts } & \text { Debit \$ } & \text { Credit \$ } \
\text { Bank Trust } & 36000000 & \
\text { Application } & & 36000000
\end{array}$ 
B) 
$\begin{array} { l c c } 
\text { Accounts } & \text { Debit \$ } & \text { Credit \$ } \
\text { Application } & 36000000 & \
\text { Paid up capital } & & 36000000
\end{array}$ 
C) 
$\begin{array} { l c c } 
\text { Accounts } & \text { Debit \$ } & \text { Credit \$ } \
\text { Application } & 12000000 & \
\text { Paid up capital } & & 12000000
\end{array}$ 
D) 
$\begin{array} { l c c } 
\text { Accounts } & \text { Debit \$ } & \text { Credit \$ } \
\text { Bank Trust } & 12000000 & \
\text { Application } & & 12000000
\end{array}$ 
A) 
$\begin{array} { l c c } 
\text { Accounts } & \text { Debit \$ } & \text { Credit \$ } \
\text { Bank Trust } & 36000000 & \
\text { Application } & & 36000000
\end{array}$ 
B) 
$\begin{array} { l c c } 
\text { Accounts } & \text { Debit \$ } & \text { Credit \$ } \
\text { Application } & 36000000 & \
\text { Paid up capital } & & 36000000
\end{array}$ 
C) 
$\begin{array} { l c c } 
\text { Accounts } & \text { Debit \$ } & \text { Credit \$ } \
\text { Application } & 12000000 & \
\text { Paid up capital } & & 12000000
\end{array}$ 
D) 
$\begin{array} { l c c } 
\text { Accounts } & \text { Debit \$ } & \text { Credit \$ } \
\text { Bank Trust } & 12000000 & \
\text { Application } & & 12000000
\end{array}$

Question 19

When a forfeited share parcel is re-issued

Accepted Answer

A) the parcel must be issued first to existing members 
B) the shares must be paid up to at least the amount that existed prior to the forfeiture 
C) any profit on sale of the reissued shares must always be returned to the original holder 
D) any profit on sale of the reissued shares must always be kept by the company 
A) the parcel must be issued first to existing members 
B) the shares must be paid up to at least the amount that existed prior to the forfeiture 
C) any profit on sale of the reissued shares must always be returned to the original holder 
D) any profit on sale of the reissued shares must always be kept by the company

Question 20

Zebon Ltd has three distinct operations: mining, transport and communications.The company has a class of share in which the holders of those shares are entitled to a distribution from profits only out of the operations of Zebon's mining activities.This type of share is best described as a:

Accepted Answer

A) Targeted share 
B) Founder (Deferred) share 
C) Ordinary share 
D) Preference share 
A) Targeted share 
B) Founder (Deferred) share 
C) Ordinary share 
D) Preference share

Public companies must have at least five directors.

Public listed companies can issue up to 15% of their existing equity as new shares in a twelve month period, without making a regulated share offer.

Which of the following statements is incorrect?

A bonus issue

John wants to set up a proprietary company with only himself as director and himself and his wife as the only shareholders.This is:

Registration of a newly-formed company is done with the:

An undersubscribed share issue must always be abandoned and the application monies returned.

A preference share

Strontium Ltd had owner's equity of 100 000 shares, issued and called up to $1 each, but there were calls in arrears of 20 cents per share on 5000 of these shares. What is the journal entry to forfeit the shares in arrears?

Companies other than no-liability companies:

A prospectus will always guarantee a minimum return on investment for the prospective shareholder.

When a forfeited share parcel is re-issued

Zebon Ltd has three distinct operations: mining, transport and communications.The company has a class of share in which the holders of those shares are entitled to a distribution from profits only out of the operations of Zebon's mining activities.This type of share is best described as a:

Companies and Corporate Regulation

Objectives of Company Reporting, Conceptual Elements and Terminology

Profits, Reserve and Distributions to Owners

Reorganisation of Share Capital

Debt Securities

Foreign Currency Transactions and an Introduction to Hedging

Advanced Asset and Liability Issues

Income Tax

Reports and Disclosures I: Overview

Reports and Disclosures Ii: the Financial Statements

Receivership and Voluntary Administration

Liquidations

External Administration Reports and Accounts

Investments in New Assets; Introduction to Business Combinations and Associates

The Corporate Group

Acquisition Method Introduction and Substitution

Acquisition Method Application After Control Date

Intra-Group Transactions

Direct Non-Controlling Interest

Changes to Parent Investment in Subsidiaries

Indirect Interest

Translation of Foreign Currency Statements

Consolidated Cash Flow Statements

Equity Accounting Expanded and Joint Ventures

Segment Reporting

Filters

Exam 3: Forming a Company and Issuing Shares

Public companies must have at least five directors.

Public listed companies can issue up to 15% of their existing equity as new shares in a twelve month period, without making a regulated share offer.

Which of the following statements is incorrect?

A bonus issue

John wants to set up a proprietary company with only himself as director and himself and his wife as the only shareholders.This is:

Registration of a newly-formed company is done with the:

An undersubscribed share issue must always be abandoned and the application monies returned.

A preference share

Strontium Ltd had owner's equity of 100 000 shares, issued and called up to $1 each, but there were calls in arrears of 20 cents per share on 5000 of these shares. What is the journal entry to forfeit the shares in arrears?

Companies other than no-liability companies:

A prospectus will always guarantee a minimum return on investment for the prospective shareholder.

When a forfeited share parcel is re-issued

Zebon Ltd has three distinct operations: mining, transport and communications.The company has a class of share in which the holders of those shares are entitled to a distribution from profits only out of the operations of Zebon's mining activities.This type of share is best described as a:

Companies and Corporate Regulation

Objectives of Company Reporting, Conceptual Elements and Terminology

Profits, Reserve and Distributions to Owners

Reorganisation of Share Capital

Debt Securities

Foreign Currency Transactions and an Introduction to Hedging

Advanced Asset and Liability Issues

Income Tax

Reports and Disclosures I: Overview

Reports and Disclosures Ii: the Financial Statements

Receivership and Voluntary Administration

Liquidations

External Administration Reports and Accounts

Investments in New Assets; Introduction to Business Combinations and Associates

The Corporate Group

Acquisition Method Introduction and Substitution

Acquisition Method Application After Control Date

Intra-Group Transactions

Direct Non-Controlling Interest

Changes to Parent Investment in Subsidiaries

Indirect Interest

Translation of Foreign Currency Statements

Consolidated Cash Flow Statements

Equity Accounting Expanded and Joint Ventures

Segment Reporting

Filters