Deck 6: Reorganisation of Share Capital

Question 1

Slater Ltd's share capital comprises 100 000 fully paid share with an issue price of $5.00 per share.
Which of the follow methods can be used to redeem redeemable preference shares:
I by applying part of the balance of retained profits
II by applying the proceeds of a new issue of preference shares issued for that purpose
III by applying the proceeds of a new issue of ordinary shares issued for that purpose
IV by applying the balance in the unallocated share capital - forfeited shares account

A)I and IV only
B)I, II and III only
C)II and III only
D)all of I, II, III and IV

Answer 1

B

Question 2

When a company buys back its ordinary shares, it must proportionately reduce the amount of paid-up capital, retained profits and reserves.

Answer 2

False

Question 3

Transaction costs relating to share buybacks are excluded from period profit or loss and recognised as other comprehensive profit.

Answer 3

False

Question 4

A share buyback is not a form of capital reduction.

Question 5

When a company redeems its redeemable preference shares it must do so from retained profits.

Question 6

It is not possible for there to be an on-market buyback of redeemable preference shares.

Question 7

Ponting Ltd's paid-up capital currently comprises 4 000 000 shares issued fully paid for $14.00.The directors of Ponting Ltd have decided to undertake a capital reduction.
What will Ponting Ltd's share capital be if the directors decided to return $3.50 per share to its shareholders?

A)$14 000 000
B)$56 000 000
C)$28 000 000
D)$42 000 000

Question 8

Slater Ltd's share capital comprises 100 000 fully paid share with an issue price of $5.00 per share.
The directors of Boon Ltd decided to split Boon Ltd's shares.Boon Ltd currently has 1 000 000 shares fully paid to $0.50.Which combinations of share splits are possible for Slater Ltd?
I 200 000 shares paid to $2.50
II 2 000 000 shares paid to $1.00
III 10 000 000 shares paid to $0.05
IV 2 000 000 shares paid to $0.50

A)I only
B)I and IV only
C)III only
D)I, II and III only

Question 9

It is not possible to have an equal access share buyback for redeemable preference shares.

Question 10

The share capital of Waugh Ltd 10 000 000 ordinary shares that had an issue price of $4.00 per share and they are currently paid to $1.00.
The directors of Waugh Ltd are considering a consolidation of shares.Which of the following combinations of share consolidations are possible:
I 2 000 000 shares paid to $5.00 with $15.00 uncalled
II 20 000 000 shares paid to $0.50 with $2.00 uncalled
III 2 500 000 shares paid to $4.00 with $12.00 uncalled
IV 1 000 000 shares paid to $10.00 with $25.00 uncalled.

A)III only
B)I, II and IV only
C)I and III only
D)III and IV only

Question 11

An on market share buyback always results in the amount paid for the shares exceeding the per share interest in owners' equity immediately before the share buyback.

Question 12

Listed redeemable preference shares can be acquired for less than their redemption amount using an on-market buyback.

Question 13

Lehman Ltd has 50 000, 10 % cumulative preference shares fully paid to $2.00 which it wishes to replace with 50 000, 6 % cumulative preference shares fully paid to $2.00.It can do this provided it pays a penalty equal to 5% of the issued price of the preference shares.The penalty is by way of a special dividend.
Lehman Ltd classifies these preference shares as debt.The penalty payment will be recognised in Lehman's financial statements:

A)in the profit or loss statement as an expense of $2 500
B)in the profit or loss statement as an expense of $5 000
C)in the changes in equity statement as a reduction in retained profits of $2 500
D)in the changes in equity statement as a reduction in retained profit of $5 000

Question 14

The share capital of Waugh Ltd 10 000 000 ordinary shares that had an issue price of $4.00 per share and they are currently paid to $1.00.
On 31 December the directors of Waugh Ltd decided that its ordinary shares should be consolidated so that the share capital would comprise 2 500 000 ordinary shares.After the consolidation, the amount outstanding (uncalled) on each share will be:

A)$5.00
B)$12.00
C)$20.00
D)$15

Question 15

Lehman Ltd has 50 000, 10 % cumulative preference shares fully paid to $2.00 which it wishes to replace with 50 000, 6 % cumulative preference shares fully paid to $2.00.It can do this provided it pays a penalty equal to 5% of the issued price of the preference shares.The penalty is by way of a special dividend.
Lehman Ltd classifies these preference shares as equity.The penalty payment will be recognised in Lehman's financial statements as:

A)in the profit or loss statement as an expense of $2 500
B)in the profit or loss statement as an expense of $5 000
C)in the changes in equity statement as a reduction in retained profits of $2 500
D)in the changes in equity statement as a reduction in retained profit of $5 000

Question 16

A consolidation of shares results in an increase in the amount of paid-up share capital, but not the amount of issued share capital.

Question 17

The share capital of Waugh Ltd 10 000 000 ordinary shares that had an issue price of $4.00 per share and they are currently paid to $1.00.
On 30 June 20X1 the directors of Waugh Ltd decided that the ordinary shares will be split into 20 000 000 ordinary shares.After the split the new shares will be paid-up to:

A)$0.50
B)$2.00
C)$4.00
D)$8.00

Question 18

Slater Ltd's share capital comprises 100 000 fully paid share with an issue price of $5.00 per share.
On 30 April 20X9 the directors of Slater Ltd decided to consolidate the company's shares.How many shares will Slater Ltd have on issue if those shares are fully paid to $10.00 after the consolidation?

A)1 000 000
B)100 000
C)500 000
D)50 000

Question 19

The result of share splits and share consolidations on share capital is:

A)the total amounts of paid-up share capital and uncalled share capital (if any) are unchanged.However the number of shares is changed and the amount (if any) uncalled on each share changes.
B)the ratio of amount paid-up to the amount uncalled on the shares is unchanged but the number of shares changes.
C)the total paid-up share capital increases in the case of a share split and decreases in the case of a share consolidation.
D)the amount paid-up per share and the amount uncalled per share change in proportion, but the equivalent issue price per share does not.

Question 20

Slater Ltd's share capital comprises 100 000 fully paid share with an issue price of $5.00 per share.
On 30 October 20X8 the directors of Slater Ltd decided to split the company's shares.How many shares will Slater Ltd have on issue if those shares are fully paid to $2.00 after the split?

A)2 500 000
B)50 000
C)500 000
D)250 000

Question 21

Under the Corporations Act, five types of share buybacks are possible:
I minimum holding buybacks
II employee share scheme buybacks
III on-market buybacks
IV equal access scheme buybacks
V selective buybacks
Which types of buyback always require a special resolution?

A)I, III, IV and V only
B)IV and V only
C)V only
D)II and V only

Question 22

Ponting Ltd's paid-up capital currently comprises 4 000 000 shares issued fully paid for $14.00.The directors of Ponting Ltd have decided to undertake a capital reduction.
Under AASB 132 expenditure incurred in making a share buyback is treated as:

A)a revenue included in determining period profit of loss
B)an expense included in determining period profit of loss
C)is recognised as a deduction from equity
D)is deducted from the aggregate of paid-up share capital

Question 23

Ponting Ltd's paid-up capital currently comprises 4 000 000 shares issued fully paid for $14.00.The directors of Ponting Ltd have decided to undertake a capital reduction.
What will be the paid-up capital per share after the capital reduction if the amount of the reduction is $20 000 000?

A)$12.00
B)$10.00
C)$9.00
D)$18.00

Question 24

Ponting Ltd's paid-up capital currently comprises 4 000 000 shares issued fully paid for $14.00.The directors of Ponting Ltd have decided to undertake a capital reduction.
The directors of Ponting Ltd have decided to reduce capital by a pro rata cancellation of shares.How many shares will be on issue after the capital reduction if capital of $21 000 000 is returned?

A)3 750 000
B)2 500 000
C)3 500 000
D)2 750 000

Question 25

Which of the following types of capital reduction are not expressly authorised by the Corporations Act?

A)those following a share buyback
B)cancellation of redeemable preference shares that have been redeemed out of profits
C)those involving a cancellation of previously forfeited shares
D)cancellation of paid-up capital that is lost or not represented by available assets

Question 26

Under the Corporations Act, five types of share buybacks are possible:
I minimum holding buybacks
II employee share scheme buybacks
III on-market buybacks
IV equal access scheme buybacks
V selective buybacks
A share buyback must be supported by an ordinary resolution if the 10/12 limit is exceeded for:

A)II, III, IV and V only
B)I, II, III and IV only
C)II, III, and IV only
D)II and IV only

Question 27

Notice of an intention to undertake a share buyback:

A)must be given in all cases
B)is required for II, III and IV
C)is required for II, III, IV and V only
D)is not required for any type of buyback

Question 28

Ponting Ltd's paid-up capital currently comprises 4 000 000 shares issued fully paid for $14.00.The directors of Ponting Ltd have decided to undertake a capital reduction.
In the textbook it is suggested that a share buybacks can be characterised in two ways referred to as proprietary view and an entity view.Which of the following statements best reflects the two methods:

A)the proprietary view is required by AASB 132 but only the entity view is consistent with the conceptual framework
B)an entity may adopted either the entity view or the proprietary view provided the method adopted is disclosed
C)the entity view is required by AASB 132 but only the proprietary view is consistent with the conceptual framework
D)neither the proprietary view nor the entity view is consistent with the conceptual framework.

Question 29

Ponting Ltd's paid-up capital currently comprises 4 000 000 shares issued fully paid for $14.00.The directors of Ponting Ltd have decided to undertake a capital reduction.
Two types of capital reductions not expressly authorised by the Companies Act are selective reductions and equal (access) reductions.Under the Act the shareholder approval requirements are:

A)for both types of reduction, approved must be by a special resolution
B)equal reductions require ordinary resolution and selective reductions can be approved by a resolution by all ordinary shareholders
C)equal reductions require a resolution of all ordinary shareholders and selective reductions a special resolution by those shareholders whose shares are subject to the reduction
D)no shareholder approval process is required