Question 1

As a residual interest,equity ranks after liabilities in terms of a claim against the assets of a reporting entity.

Accepted Answer

A) True 
 B)False  True

Question 2

If a company is listed in the London Stock Exchange and shareholders fail to pay the amount due on allotment,the shares forfeited must be refunded in full to defaulting investors.

Accepted Answer

A) True 
 B)False  False

Question 3

In the case of a share issue being oversubscribed,excess application monies:

Accepted Answer

A) will always be refunded to applicants. 
B) may be used to reduce future amounts owing on allotment if the shares are issued on a pro rata basis. 
C) must be recorded as revenue in the current financial period. 
D) must be placed in a trust account until a refund is requested by applicants. 
A) will always be refunded to applicants. 
B) may be used to reduce future amounts owing on allotment if the shares are issued on a pro rata basis. 
C) must be recorded as revenue in the current financial period. 
D) must be placed in a trust account until a refund is requested by applicants. B

Question 4

Share splits are conducted because it is believed that:

Accepted Answer

A) Excess capital leads to reduced return ratios, which the market does not view favourably. 
B) Increasing the number of shares issued makes the company appear larger and more stable. 
C) Decreasing the price per share makes them more marketable. 
D) Investors view this as a bonus because they now have more shares than they previously held. 
A) Excess capital leads to reduced return ratios, which the market does not view favourably. 
B) Increasing the number of shares issued makes the company appear larger and more stable. 
C) Decreasing the price per share makes them more marketable. 
D) Investors view this as a bonus because they now have more shares than they previously held.

Question 5

IAS 10 Events After the Reporting Period specifically prohibits the recognition of dividends as a liability at the end of the reporting period if:

Accepted Answer

A) the dividends have been declared before the end of the reporting period. 
B) the dividends have been declared after the end of the reporting period. 
C) the dividends have been declared during the reporting period. 
D) the dividends have not been declared after the end of the reporting period. 
A) the dividends have been declared before the end of the reporting period. 
B) the dividends have been declared after the end of the reporting period. 
C) the dividends have been declared during the reporting period. 
D) the dividends have not been declared after the end of the reporting period.

Question 6

Explain how an entity could handle excess monies in a share issue that is oversubscribed.

Accepted Answer

When there has been an oversubscription

Question 7

Which of the following is ? not a required disclosure to be made in relation to each class of share capital?

Accepted Answer

A) number of shares authorised 
B) number of shares issued and fully paid and issued but not fully paid 
C) par value per share or that the shares have no par value 
D) None of the given answers are correct. 
A) number of shares authorised 
B) number of shares issued and fully paid and issued but not fully paid 
C) par value per share or that the shares have no par value 
D) None of the given answers are correct.

Question 8

Company law usually requires that where a company redeems preference shares it must do so out of profits that would otherwise be available for dividends or out of the proceeds of a fresh issue of shares made for the purpose of the redemption.

Accepted Answer

A) True 
 B)False

Question 9

Cartoon Plc is listed on the London Stock Exchange.It has 3 million shares issued at a price of £5.50 per share.The investors were required to pay £2.00 on application and £1.00 on allotment.Both these amounts were paid in full.A first and final call of £2.50 was made and was due on 30 August 2013.At the end of November the directors of the company elect to forfeit 50 000 shares on which the holders have failed to pay the call.Cartoon Plc reissues the shares fully paid up for a price of £4.75 and incurred costs of £1500.What are the entries required to forfeit the shares,reissue the shares,and make a refund if appropriate?

Accepted Answer

A)  $\text { Forfeit the shares: }$
$\begin{array}{|l|l|r|r|}
\hline \mathrm{Dr} & \text { Share capital } & 150000 & \
\hline \mathrm{Cr} & \text { Forfeit shares account } & & 150000 \
\hline
\end{array}$

$\text { Reissue the shares: }$
$\begin{array}{|c|l|r|r|}
\hline \mathrm{Dr} & \text { Cash at bank } & 87500 & \
\hline \mathrm{Cr} & \text { Share capital } & & 87500 \
\hline & & & \
\hline \mathrm{Dr} & \text { Forfeit shares account } & 1500 & \
\hline \mathrm{Cr} & \text { Cash at bank } & & 1500 \
\hline
\end{array}$

$\text { Refund the shares: }$ 
$\begin{array}{|l|l|r|r|}
\hline \mathrm{Dr} & \text { Forfeit shares account } & 148500 & \
\hline \mathrm{Cr} & \text { Cash at bank } & & 148500 \
\hline
\end{array}$ 
B)  $\text { Forfeit the shares: }$
$\begin{array}{|l|l|r|r|}
\hline \mathrm{Dr} & \text { Share capital } & 275000 & \
\hline \mathrm{Cr} & \text { Call } & & 125000 \
\hline \mathrm{Cr} & \text { Forfeit shares account } & & 150000\
\hline
\end{array}$

$\text { Reissue the shares: }$
$\begin{array}{|l|l|r|r|}
\hline \mathrm{Dr} & \text { Cash at bank } & 237500 & \
\hline \mathrm{Dr} & \text { Forfeit shares account } & 37500 & \
\hline \mathrm{Cr} & \text { Share capital } & & 275000 \
\hline \mathrm{Dr} & \text { Forfeit shares account } & 500 & \
\hline \mathrm{Cr} & \text { Cash at bank } & & \
\hline
\end{array}$

Refund the shares:
No entry required 
C)  $\text { Forfeit the shares: }$
$\begin{array}{|l|l|r|r|}
\hline \mathrm{Dr} & \text { Share capital } & 275000 & \
\hline \mathrm{Cr} & \text { Call } & & 125000 \
\hline \mathrm{Cr} & \text { Forfeit shares account } & & 150000 \
\hline
\end{array}$

$\text { Reissue the shares: }$
$\begin{array}{|l|l|r|r|}
\hline\mathrm{Dr} & \text { Cash at bank } & 237500 & \
\hline \mathrm{Dr} & \text { Forfeit shares account } & 37500 & \
\hline \mathrm{Cr} & \text { Share capital } & & 275000 \
\hline & & & \
\hline \mathrm{Dr} & \text { Forfeit shares account } & 1500 & \
\hline \mathrm{Cr} & \text { Cash at bank } & & 1500\
\hline
\end{array}$

$\text { Refund the shares: }$ 
$\begin{array}{|l|l|r|r|}
\hline \mathrm{Dr} & \text { Forfeit shares account } & 111000 & \
\hline \mathrm{Cr} & \text { Cash at bank } & & 111000 \
\hline
\end{array}$ 
D)  $\text { Forfeit the shares: }$
$\begin{array}{|l|l|r|r|}
\hline \mathrm{Dr} & \text { Share capital } & 150000 & \
\hline \mathrm{Cr} & \text { Forfeit shares account } & & 150000 \
\hline
\end{array}$

$\text { Reissue the shares: }$
$\begin{array}{|c|l|r|r|}
\hline \text { Dr } & \text { Cash at bank } & 87500 & \
\hline \mathrm{Cr} & \text { Share capital } & & 87500 \
\hline & & & \
\hline \mathrm{Dr} & \text { Forfeit shares account } & 1500 & \
\hline \mathrm{Cr} & \text { Cash at bank } & & 1500\
\hline
\end{array}$

Refund the shares:
None to be made 
A)  $\text { Forfeit the shares: }$
$\begin{array}{|l|l|r|r|}
\hline \mathrm{Dr} & \text { Share capital } & 150000 & \
\hline \mathrm{Cr} & \text { Forfeit shares account } & & 150000 \
\hline
\end{array}$

$\text { Reissue the shares: }$
$\begin{array}{|c|l|r|r|}
\hline \mathrm{Dr} & \text { Cash at bank } & 87500 & \
\hline \mathrm{Cr} & \text { Share capital } & & 87500 \
\hline & & & \
\hline \mathrm{Dr} & \text { Forfeit shares account } & 1500 & \
\hline \mathrm{Cr} & \text { Cash at bank } & & 1500 \
\hline
\end{array}$

$\text { Refund the shares: }$ 
$\begin{array}{|l|l|r|r|}
\hline \mathrm{Dr} & \text { Forfeit shares account } & 148500 & \
\hline \mathrm{Cr} & \text { Cash at bank } & & 148500 \
\hline
\end{array}$ 
B)  $\text { Forfeit the shares: }$
$\begin{array}{|l|l|r|r|}
\hline \mathrm{Dr} & \text { Share capital } & 275000 & \
\hline \mathrm{Cr} & \text { Call } & & 125000 \
\hline \mathrm{Cr} & \text { Forfeit shares account } & & 150000\
\hline
\end{array}$

$\text { Reissue the shares: }$
$\begin{array}{|l|l|r|r|}
\hline \mathrm{Dr} & \text { Cash at bank } & 237500 & \
\hline \mathrm{Dr} & \text { Forfeit shares account } & 37500 & \
\hline \mathrm{Cr} & \text { Share capital } & & 275000 \
\hline \mathrm{Dr} & \text { Forfeit shares account } & 500 & \
\hline \mathrm{Cr} & \text { Cash at bank } & & \
\hline
\end{array}$

Refund the shares:
No entry required 
C)  $\text { Forfeit the shares: }$
$\begin{array}{|l|l|r|r|}
\hline \mathrm{Dr} & \text { Share capital } & 275000 & \
\hline \mathrm{Cr} & \text { Call } & & 125000 \
\hline \mathrm{Cr} & \text { Forfeit shares account } & & 150000 \
\hline
\end{array}$

$\text { Reissue the shares: }$
$\begin{array}{|l|l|r|r|}
\hline\mathrm{Dr} & \text { Cash at bank } & 237500 & \
\hline \mathrm{Dr} & \text { Forfeit shares account } & 37500 & \
\hline \mathrm{Cr} & \text { Share capital } & & 275000 \
\hline & & & \
\hline \mathrm{Dr} & \text { Forfeit shares account } & 1500 & \
\hline \mathrm{Cr} & \text { Cash at bank } & & 1500\
\hline
\end{array}$

$\text { Refund the shares: }$ 
$\begin{array}{|l|l|r|r|}
\hline \mathrm{Dr} & \text { Forfeit shares account } & 111000 & \
\hline \mathrm{Cr} & \text { Cash at bank } & & 111000 \
\hline
\end{array}$ 
D)  $\text { Forfeit the shares: }$
$\begin{array}{|l|l|r|r|}
\hline \mathrm{Dr} & \text { Share capital } & 150000 & \
\hline \mathrm{Cr} & \text { Forfeit shares account } & & 150000 \
\hline
\end{array}$

$\text { Reissue the shares: }$
$\begin{array}{|c|l|r|r|}
\hline \text { Dr } & \text { Cash at bank } & 87500 & \
\hline \mathrm{Cr} & \text { Share capital } & & 87500 \
\hline & & & \
\hline \mathrm{Dr} & \text { Forfeit shares account } & 1500 & \
\hline \mathrm{Cr} & \text { Cash at bank } & & 1500\
\hline
\end{array}$

Refund the shares:
None to be made

Question 10

A statement of changes in equity includes:

Accepted Answer

A) each item of income and expense for the period that, as required by other International Financial Reporting Standards, is recognised directly in equity. 
B) profit or loss for the period. 
C) total income and expense for the period showing separately the total amounts attributable to equity holders of the parent and to minority interest. 
D) each item of income and expense for the period that, as required by other International Financial Reporting Standards, is recognised directly in equity, profit or loss for the period, and total income and expense for the period showing separately the total amounts attributable to equity holders of the parent and to minority interest. 
A) each item of income and expense for the period that, as required by other International Financial Reporting Standards, is recognised directly in equity. 
B) profit or loss for the period. 
C) total income and expense for the period showing separately the total amounts attributable to equity holders of the parent and to minority interest. 
D) each item of income and expense for the period that, as required by other International Financial Reporting Standards, is recognised directly in equity, profit or loss for the period, and total income and expense for the period showing separately the total amounts attributable to equity holders of the parent and to minority interest.

Question 11

It used to be normal practice to issue shares at below par value.

Accepted Answer

A) True 
 B)False

Question 12

What is the effect of a share split on earnings per share and the number of shares outstanding,respectively?

Accepted Answer

A) increase; decrease 
B) decrease; increase 
C) increase; increase 
D) no effect; increase 
A) increase; decrease 
B) decrease; increase 
C) increase; increase 
D) no effect; increase

Question 13

Normal features of ordinary shares include:

Accepted Answer

A) They entitle the holder to receive his/her proportion of any ordinary dividends declared. 
B) They ensure the holder has priority over unsecured creditors in the case of the company going into liquidation. 
C) They confer voting rights. 
D) They entitle the holder to receive his/her proportion of any ordinary dividends declared and they confer voting rights. 
A) They entitle the holder to receive his/her proportion of any ordinary dividends declared. 
B) They ensure the holder has priority over unsecured creditors in the case of the company going into liquidation. 
C) They confer voting rights. 
D) They entitle the holder to receive his/her proportion of any ordinary dividends declared and they confer voting rights.

Question 14

Share capital is also referred to as:

Accepted Answer

A) equity 
B) contributed equity 
C) owners contribution 
D) shareholder equity 
A) equity 
B) contributed equity 
C) owners contribution 
D) shareholder equity

Question 15

The term 'reserves' in the statement of financial position is used to identify:

Accepted Answer

A) a decline in the fair value of a non-current asset. 
B) an amount of retained earnings that is allocated for a specific purpose. 
C) the allowance for uncollectible receivables. 
D) an amount that is being accumulated to reduce the financial effect of a litigation lawsuit. 
A) a decline in the fair value of a non-current asset. 
B) an amount of retained earnings that is allocated for a specific purpose. 
C) the allowance for uncollectible receivables. 
D) an amount that is being accumulated to reduce the financial effect of a litigation lawsuit.

Question 16

Accounts that make up owners' equity may include:

Accepted Answer

A) preference shares. 
B) debentures. 
C) general reserves. 
D) preference shares and general reserves. 
A) preference shares. 
B) debentures. 
C) general reserves. 
D) preference shares and general reserves.

Question 17

Explain the options available for a company when an investor fails to pay the amounts due on subsequent calls.

Accepted Answer

If shares are issued as partly paid and

Question 18

Share capital:

Accepted Answer

A) relates to one class of shares, with the remaining equity recorded as reserves or retained profits. 
B) represents the amount shareholders are guaranteed to receive if the company is wound up. 
C) may relate to one or several classes of shares. 
D) may be calculated by subtracting liabilities from assets. 
A) relates to one class of shares, with the remaining equity recorded as reserves or retained profits. 
B) represents the amount shareholders are guaranteed to receive if the company is wound up. 
C) may relate to one or several classes of shares. 
D) may be calculated by subtracting liabilities from assets.

Question 19

Which of the following would not apply to a preference shares?

Accepted Answer

A) higher order of ranking in relation to asset distributions on the winding up of the company 
B) redeemable at a set date in the future 
C) can be classified as an expense 
D) can be converted to ordinary shares 
A) higher order of ranking in relation to asset distributions on the winding up of the company 
B) redeemable at a set date in the future 
C) can be classified as an expense 
D) can be converted to ordinary shares

Question 20

Reserves recorded in the equity section of the statement of financial position:

Accepted Answer

A) represent an amount of cash put aside for future projects. 
B) are created from excess profits that are not available for distribution as dividends. 
C) may be established by transferring amounts from retained profits. 
D) will not have an impact on the total equity reported in the equity section of the statement of financial position when created. 
A) represent an amount of cash put aside for future projects. 
B) are created from excess profits that are not available for distribution as dividends. 
C) may be established by transferring amounts from retained profits. 
D) will not have an impact on the total equity reported in the equity section of the statement of financial position when created.

Exam 11: Share Capital, Reserves and Share Options Employee Bonus Schemes

As a residual interest,equity ranks after liabilities in terms of a claim against the assets of a reporting entity.

If a company is listed in the London Stock Exchange and shareholders fail to pay the amount due on allotment,the shares forfeited must be refunded in full to defaulting investors.

In the case of a share issue being oversubscribed,excess application monies:

Share splits are conducted because it is believed that:

IAS 10 Events After the Reporting Period specifically prohibits the recognition of dividends as a liability at the end of the reporting period if:

Explain how an entity could handle excess monies in a share issue that is oversubscribed.

Which of the following is ? not a required disclosure to be made in relation to each class of share capital?

Company law usually requires that where a company redeems preference shares it must do so out of profits that would otherwise be available for dividends or out of the proceeds of a fresh issue of shares made for the purpose of the redemption.

A statement of changes in equity includes:

It used to be normal practice to issue shares at below par value.

What is the effect of a share split on earnings per share and the number of shares outstanding,respectively?

Normal features of ordinary shares include:

Share capital is also referred to as:

The term 'reserves' in the statement of financial position is used to identify:

Accounts that make up owners' equity may include:

Explain the options available for a company when an investor fails to pay the amounts due on subsequent calls.

Share capital:

Which of the following would not apply to a preference shares?

Reserves recorded in the equity section of the statement of financial position:

An Overview of the International External Reporting Environment

The Conceptual Framework of Accounting and Its Relevance to Financial Reporting

Theories of Financial Accounting

An Overview of Accounting for Assets

Depreciation of Property, Plant and Equipment

Revaluations and Impairment Testing of Non-Current Assets

Inventory

Accounting for Intangibles

An Overview of Accounting for Liabilities

Accounting for Leases

Accounting for Financial Instruments

Revenue Recognition Issues

The Statement of Comprehensive Income and Statement of Changes in Equity

Accounting for Income Taxes

The Statement of Cash Flows

Events Occurring After the Reporting Date

Related-Party Disclosures

Earnings Per Share

Further Consolidation Issues I: Accounting for Intragroup Transactions

Further Consolidation Issues II: Accounting for Non-Controlling Interests

Further Consolidation Issues III: Accounting for Indirect Ownership Interest

Accounting for Foreign Currency Transactions

Translating the Financial Statements of Foreign Operations

Accounting for Corporate Social Responsibility

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