Deck 19: Capital Reorganisation

Question 1

The return of capital and share buy- backs are permitted without legal authorisation if the reduction:

A)is fair and reasonable to the company's shareholders as a whole
B)does not materially prejudice the company's ability to pay its creditors
C)is approved by shareholders
D)all of the above

Answer 1

D

Question 2

A buy- back in which the company buys shares from a particular shareholder or only some of the shareholders in the company is:

A)an employee share scheme buy- back
B)an on- market buy- back
C)a minimum holding buy- back
D)a selective buy- back

Answer 2

D

Question 3

Explain the concept of subdividing shares.

Answer 3

In the subdivision of shares,the issued price of shares is reduced and the number of shares on issue is increased.While the total share capital will not change,the market price of the shares is expected to change in the same proportion.This may have the effect of making the shares more attractive to investors,particularly small investors.A company may have 100 000 $1 shares as share capital.The market price at a particular date may be,say,$8.If the company decides to subdivide the shares into 200 000 $0.50 shares,the share capital remains the same but the market price of the shares will fall to approximately $4.Reparcelling in this manner may make the shares more attractive to investors.When shares are subdivided no journal entries are required,as there is no change to share capital,but there is a requirement to record the changes in the share register.Section 254H(3)requires that if the company has partly paid shares,the amount unpaid (uncalled capital)must be divided equally among the replacement shares.For example,if a company splits its share capital on the basis of two shares for every one held,and an amount of $0.50 was uncalled on the shares prior to the split,the amount uncalled after the split would be $0.25 per share.C19

Question 4

Preference shares that may be repurchased by the company are known as:

A)cumulative preference shares
B)convertible preference shares
C)redeemable preference shares
D)none of the above

Question 5

Explain the concept of the forfeiture of shares.

Question 6

Explain when and how capital may be returned to preference shareholders.

Question 7

The Corporations Act specifies five types of share buy- back schemes including:

A)an equal access scheme applying only to ordinary shares
B)a selective buy- back
C)an employee share scheme buy- back
D)all of the above

Question 8

In the Corporations Act,the repurchase of a company's own shares is known as a:

A)share repurchase
B)share reinvestment
C)share buy- back
D)none of the above

Question 9

Identify the five types of buy- back schemes specified by the Corporations Act.

Question 10

Which of the following statements is correct?

A)the Corporations Act allows a company to only convert an ordinary share into a preference share
B)the Corporations Act allows a company to convert an ordinary share into a preference share and convert a preference share into an ordinary share
C)the Corporations Act prohibits a company from convert shares into different types
D)the Corporations Act allows a company to only convert a preference share into an ordinary share

Question 11

Included in the share capital of Sundale Ltd were $200,000 in fully paid $1,10% redeemable preference shares.If the company redeems the shares at a 10% premium,the entries will include a:

A)Credit to preference share capital for $200,000
B)Credit to Cash for $20,000
C)Credit to Cash for $220,000
D)Debit to Cash for $220,000

Question 12

The surrendering of shares according to the terms of issue,usually due to a failure to pay calls on partly paid shares is referred to as:

A)cancellation
B)subdivision
C)consolidation
D)forfeiture

Question 13

An on- market buy- back is where:

A)a company buys shares owned by employees under an existing share acquisition scheme already approved by the company in a general meeting
B)a company makes the same offer to each shareholder to buy back the same percentage of each shareholder's shares
C)a company buys its own shares in the ordinary course of trading on a securities exchange
D)a listed company buys small,non- marketable parcels of shares

Question 14

When shares are subdivided:

A)changes must be recorded in the share register
B)no journal entries are required
C)both A and B
D)there is a change to share capital

Question 15

Explain the concept of a share buy- back and the reasons for share buy- backs.

Question 16

The reasons why a company may wish to reduce its share capital include:

A)it pursues a rationalisation of the operations of a parent and its subsidiary company
B)it has excess cash which it wishes to return to shareholders
C)capital has been lost or is no longer represented by assets; it wishes to cancel uncalled capital on contributing (partly paid)shares
D)all of the above

Question 17

The conversion of shares within the same class into a smaller number of shares is known as:

A)share distribution
B)share split
C)share consolidation
D)share conversion

Question 18

Explain why a company may wish to reduce its share capital.