Deck 15: Equity

Question 1

The treatment recommended under AASB 2,for share options granted as remuneration to employees is:

A) not to record the options, as the entity is not required to sacrifice cash
B) to recognise the options as an expense
C) to measure the value of the option on the grant date
D) both B and C

Answer 1

D

Question 2

Which approach to accounting for convertible notes is required in AASB 132 'Presentation and Disclosure of Financial Instruments'?

A) Recognise according to the application of the framework criteria for the definition and recognition of liabilities and equity
B) Separate into their equity and debt components
C) Recognise as a liability in accordance with their legal form
D) None of the above

Answer 2

B

Question 3

Which of the statements is incorrect? Under a compensatory compared to a non-compensatory plan to allow employees to acquire shares in their company:

A) the offer is likely to include specific performance hurdles
B) the offer will be required to be taken up immediately
C) the number of options offered will differ among individual employees
D) none of the statements is incorrect

Answer 3

B

Question 4

Asset revaluation reserves arise from:

A) application of the Corporations Act and the accounting standards
B) transfers from retained earnings
C) transfers from cash at bank
D) none of the above

Question 5

Notia Ltd,under an equity-based remuneration plan,grants 5 senior executives the option of buying shares at $4 per share.At the date of granting the option the shares have a market value of $5.00 each.One executive exercises the right to buy 2000 shares on l January 2010.In principle,the basic accounting entry for this transaction would be:

A) debit bank $10 000, credit share capital $10 000
B) debit remuneration expense $2000, debit bank $8000, credit share capital $10 000
C) debit bank $8000, debit general reserve $2000, credit share capital $10 000
D) none of the above

Question 6

Under AASB 132,preference shares that must be redeemed by the issuer for a fixed or determinable amount at a fixed or determinable future date will be classified as:

A) liability
B) equity
C) part liability, part equity
D) cannot tell

Question 7

Which of these items,under AASB 101,need not be disclosed on the face of the balance sheet?

A) Minority interest
B) The number of shares issued and the extent to which they are fully paid
C) Retained earnings attributable to equity holders of the parent
D) None of the above, i.e., all must be disclosed on the face of the balance sheet

Question 8

The three broad components of equity for a company are:

A) public equity, contributed equity, government equity
B) ordinary shares, preference shares, options
C) share capital, retained earnings, reserves
D) ordinary shares, preference shares, reserves

Question 9

Which of the following is not an implication of the framework's definition of equity?

A) Measurement of equity depends on the concept of capital employed
B) Components of equity, such as share capital, can be identified
C) It cannot be identified independently of assets and liabilities
D) It ranks after liabilities on winding up

Question 10

A reason why a company might wish to buy back its own shares is:

A) to decrease its debt to equity ratio
B) to protect its creditors
C) to use funds to benefit shareholders where there are insufficient profitable investment opportunities
D) all of the above

Question 11

When an entity re-acquires its own shares:

A) those shares shall be removed from equity
B) no gain or loss shall be recognised in the income statement
C) they must not be recognised as a financial asset
D) all of the above

Question 12

Whitely Ltd issues 50 000 shares at $4.60 per share.The accounting effect of the issue is:

A) debit cash at bank $230 000, credit share capital $230 000
B) debit applications $230 000, credit share capital $230 000
C) debit cash at bank $50 000, credit share capital $50 000
D) none of the above

Question 13

Debt instruments that include an option to convert them to equity under specified conditions are known as:

A) preference shares
B) convertible notes
C) options
D) rights

Question 14

A transfer from retained earnings would have created a/an:

A) asset revaluation reserve
B) foreign currency translation reserve
C) general reserve
D) share premium reserve

Question 15

Management decided to buy-back 1 million shares that had been issued for $1 per share,for $1 per share.At the time of the buy-back total share capital was 20 million shares.The likely accounting entry to record the buy-back is:

A) debit share capital $1 000 000; credit cash at bank $1 000 000
B) debit share capital $500 000; credit cash at bank $500 000
C) debit share capital $20 000 000; credit cash at bank $20 000 000
D) debit retained earnings $500 000; credit cash at bank $500 000

Question 16

If a preference share dividend cannot be paid in a particular year and will then accrue as a liability until the funds are available,the preference shares are known as:

A) cumulative preference shares
B) participating preference shares
C) non-participating preference shares
D) redeemable preference shares

Question 17

Which of these is a way in which a company can raise capital through the issue of shares?

A) Dividend reinvestment plan
B) Employee share plan
C) Rights issue
D) All of the above

Question 18

AASB 101 requires disclosure relating to:

A) the par value of shares
B) whether shares have no par value
C) the number of shares issued
D) all of the above

Question 19

A scheme where a company provides employees with options to acquire shares in the company where the primary aim of the scheme is to reduce conflict between owners and employees is known as:

A) a compensatory plan
B) a non-compensatory plan
C) an employee plan
D) none of the above

Question 20

What approval is required under the Corporations Act 2001 if a company wishes to buy back its own shares?

A) Shareholders' approval is required if more than 5% of the shares are to be bought over a 12 month period
B) Shareholders' approval is required if more than 10% of the shares are to be bought over a 12 month period
C) Shareholders' approval is required for all buy-backs
D) None of the above

Question 21

Explain the nature of compound financial instruments and how to account for them in Australia.

Question 22

Explain the requirements of AASB 101 as they relate to the presentation and disclosure of equity.

Question 23

Distinguish between compensatory and non-compensatory share option plans.How does AASB 2 suggest that each be accounted for?

Question 24

When a company buys back some of its shares and the amount used to pay dividends remains the same after the buyback,the return on each ordinary share will:

A) increase
B) decrease
C) remain the same
D) it depends

Question 25

Under AASB 101,the statement of changes in equity is required to include which of the following on its face?

A) Profit or loss for the period
B) Revaluation increments
C) Both A and B
D) Neither A nor B

Question 26

Discuss the arguments against recognising share options as an expense in the period in which the employee provides services.

Question 27

Convertible notes and other securities that are legally classified as debt but which contain elements of equity are known by the term:

A) share options
B) equity instruments
C) derivatives
D) compound financial instruments