Question 1

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 C

Question 2

Which statement is untrue for private (Pty Ltd)companies?

Accepted Answer

A)  They tend to be associated with smaller businesses
B)  There are fewer private companies in Australia than public companies
C)  They are less regulated than public companies
D)  The shareholders are often family members B

Question 3

In a company statement of financial position, the balance of retained profit at the end of the period is equal to:

Accepted Answer

A)  profit for the period.
B)  retained profit at the beginning of the period plus profit minus dividends declared.
C)  profit less losses.
D)  retained profit at the beginning of the period plus profit. B

Question 4

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.

Question 5

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

Question 6

Small proprietary companies are relieved of many of the reporting requirements to which public companies are subject. A company is deemed to be 'small' if it satisfies two of three specified criteria. Which of the following is not one of the criteria?

Accepted Answer

A)  It has consolidated gross profits of less than $30 million.
B)  Its consolidated gross assets at the end of the financial year are less than $12.5 million.
C)  It employs fewer than 50 employees at the end of the financial year.
D)  It has consolidated gross operating revenue of less than $25 million

Question 7

Sovereign Ltd has an issued capital of 300 000 000 shares sold at $2 each. Aman holds 9 000 shares. If Sovereign Ltd makes a 1 for 3 bonus issue, how many bonus shares will Aman acquire?

Accepted Answer

A)  3 000 shares
B)  1 800 shares
C)  2 000 shares
D)  9 000 shares

Question 8

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

Question 9

Jane and Jarrod have been employed by two different firms of photographers. They decide they should get together and establish their own business, called JJ Photographers. Each has decided to contribute $20 000 in cash to buy equipment, and they will rent premises in the local shopping centre. Both will work full time in the business and share profits and losses equally. They are not sure whether they should set up as a partnership or as a private company and have come to you for advice.
REQUIRED:
Explain to Jane and Jarrod the advantages and disadvantages of a partnership versus a private company structure for their new venture.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Accepted Answer

The answer of Jane and Jarrod have been employed by...

Question 10

A shareholder in Company C owns 2 000 shares bought for $1 each. The company decides to make a bonus issue of one new share for every two existing shares held. How many shares does the shareholder now have in Company C?

Accepted Answer

A)  3 000 shares
B)  1 500 shares
C)  500 shares
D)  1 000 shares

Question 11

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

Question 12

Additional regulations that may apply to limited companies (depending on their classification)do not include requirements relating to:

Accepted Answer

A)  the audit of annual reports by a registered auditor.
B)  a limited number of employees.
C)  the submission of annual reports to ASIC.
D)  preparation of annual reports in accordance with accounting standards.

Question 13

Which statement relating to preference shares is not correct?

Accepted Answer

A)  They are often non-voting shares.
B)  They are generally more risky for shareholders to own than ordinary shares.
C)  They are entitled to receive a dividend before the ordinary shareholders.
D)  They normally have a fixed rate of dividend attached.

Question 14

Which of the following is not a reason for a company making a bonus issue of shares?

Accepted Answer

A)  To use cash.
B)  As a signal to the market of the company's confidence in its future.
C)  To reduce its share price when it has become too high.
D)  None of the above, i.e., all are reasons for making a bonus issue

Question 15

The disadvantages of a company business structure include all of the following except:

Accepted Answer

A)  extensive regulatory requirements.
B)  more expensive to establish.
C)  less management flexibility.
D)  mutual agency.

Question 16

The largest source of new finance for Australian companies is:

Accepted Answer

A)  retained profits.
B)  share issues.
C)  bank loans.
D)  revaluations.

Question 17

The shareholders that are eligible to vote for the board of directors of a company are:

Accepted Answer

A)  all shareholders holding more than 1 000 shares.
B)  all shareholders who attend the annual general meeting.
C)  all shareholders holding voting shares.
D)  all preference shareholders.

Question 18

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

Question 19

Which of the following is not a rule in the framework used for monitoring and controlling the behaviour of company directors?

Accepted Answer

A)  Subjectivity
B)  Disclosure
C)  Fairness
D)  Accountability

Question 20

How are dividends that have been declared and authorised but remain unpaid at the end of the year, recorded in the statement of financial position?

Accepted Answer

A)  As a current asset
B)  As a current liability
C)  As a non-current liability
D)  As a non-current asset

Exam 6: Introduction to Limited Companies