Question 1

If a company is listed on the Australian Stock Exchange and a shareholder fails to pay amounts owing on shares,the company will:

Accepted Answer

A)  transfer the unpaid amount to a forfeited share reserve that remains part of equity after the cost to reissue the shares has been deducted. 
B)  transfer the unpaid amount to a forfeited share reserve and refund the amount remaining after the cost of reissuing the shares has been deducted. 
C)  take action to collect the unpaid amount through the courts. 
D)  transfer the unpaid amount to a forfeited share account and refund the amount remaining after the cost of reissuing the shares has been deducted. 
A)  transfer the unpaid amount to a forfeited share reserve that remains part of equity after the cost to reissue the shares has been deducted. 
B)  transfer the unpaid amount to a forfeited share reserve and refund the amount remaining after the cost of reissuing the shares has been deducted. 
C)  take action to collect the unpaid amount through the courts. 
D)  transfer the unpaid amount to a forfeited share account and refund the amount remaining after the cost of reissuing the shares has been deducted. D

Question 2

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

Accepted Answer

When an investor fails to pay the amounts due on subsequent calls, a company has several options available to address the situation.

1. Legal Action: The company can take legal action against the investor to recover the unpaid amounts. This may involve filing a lawsuit or arbitration proceedings to enforce the investor's obligation to pay.

2. Forfeiture of Shares: The company may have the right to forfeit the investor's shares for non-payment. This means that the investor would lose their ownership stake in the company as a consequence of failing to meet their financial obligations.

3. Issuance of New Shares: If the investor fails to pay the amounts due on subsequent calls, the company may have the option to issue new shares to other investors in order to make up for the shortfall in funding.

4. Negotiation: The company could also choose to negotiate with the investor to come to a mutually agreeable solution. This could involve restructuring the payment schedule, offering alternative forms of compensation, or finding other ways to resolve the issue without resorting to legal action or forfeiture of shares.

Ultimately, the specific options available to a company will depend on the terms outlined in the investor agreement, as well as applicable laws and regulations. It's important for the company to carefully consider the potential consequences of each option and seek legal advice if necessary before taking any action.

Question 3

When a share split occurs:

Accepted Answer

A)  Current shareholders receive more shares thus increasing their stake in the company. 
B)  Accounting entries are required to record the increase in the number of shares on hand. 
C)  It must be done so that any uncalled amounts are divided equally when the shares are issued. 
D)  More shares are available to be purchased by the general public, allowing the company to raise more funds. 
A)  Current shareholders receive more shares thus increasing their stake in the company. 
B)  Accounting entries are required to record the increase in the number of shares on hand. 
C)  It must be done so that any uncalled amounts are divided equally when the shares are issued. 
D)  More shares are available to be purchased by the general public, allowing the company to raise more funds. C

Question 4

Motion Ltd issued $5 million in redeemable preference shares in a private placement on 1 July 2012.The shares are redeemable on 30 June 2016,have no voting rights and offer a fixed rate of return to the holder.The shares are redeemed as expected with a fresh issue of shares.What are the accounting entries and note disclosures to record the transactions on 1 July 2012and 30 June 2016?

Accepted Answer

A) 
  Note disclosure: redeemable preference shares have characteristics different to ordinary shares and so have been disclosed separately in the shareholders' funds section of the statement of financial position. 
B) 
  Note disclosure: redeemable preference shares have characteristics different to ordinary shares and so have been disclosed separately in the shareholders' funds section of the statement of financial position. 
C) 
  Note disclosure: redeemable preference shares have the characteristics of debt and so have been classified as liabilities in the statement of financial position. 
D) 
  Note disclosure: redeemable preference shares are to be redeemed on 30 June 2008. 
A) 
  Note disclosure: redeemable preference shares have characteristics different to ordinary shares and so have been disclosed separately in the shareholders' funds section of the statement of financial position. 
B) 
  Note disclosure: redeemable preference shares have characteristics different to ordinary shares and so have been disclosed separately in the shareholders' funds section of the statement of financial position. 
C) 
  Note disclosure: redeemable preference shares have the characteristics of debt and so have been classified as liabilities in the statement of financial position. 
D) 
  Note disclosure: redeemable preference shares are to be redeemed on 30 June 2008.

Question 5

Reserves form part of the shareholders' funds.

Accepted Answer

A) True 
 B)False

Question 6

If a company is listed in the Australian Securities 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

Question 7

Which of the following statements correctly describes this journal entry: $$\begin{array} { | l | l | r | r | } 
\hline \mathrm { Dr } & \text { Cash at bank } & 160000 & \
\hline \mathrm { Dr } & \text { Forfeited shares account } & 40000 & \
\hline \mathrm { Cr } & \text { Share capital } & & 200000 \
\hline \mathrm { Dr } & \text { Forfeited shares account } & 2500 & \
\hline \mathrm { Cr } & \text { Cash at bank } & & 2500 \
\hline
\end{array}$$

Accepted Answer

A)  The entry is for an entity not listed on the Australian Stock exchange and shows the buy back of shares as a result of a resolution of the Board. 
B)  The entry is for an entity listed on the Australian Stock exchange and shows the buy back of shares as a result of a resolution of the Board. 
C)  The entry is for an entity not listed on the Australian Stock exchange and shows the forfeiture of shares as a result of a failure by some shareholders to meet a call on the shares. 
D)  The entry is for an entity listed on the Australian Stock exchange and shows the forfeiture of shares as a result of a failure by some shareholders to meet a call on the shares. 
A)  The entry is for an entity not listed on the Australian Stock exchange and shows the buy back of shares as a result of a resolution of the Board. 
B)  The entry is for an entity listed on the Australian Stock exchange and shows the buy back of shares as a result of a resolution of the Board. 
C)  The entry is for an entity not listed on the Australian Stock exchange and shows the forfeiture of shares as a result of a failure by some shareholders to meet a call on the shares. 
D)  The entry is for an entity listed on the Australian Stock exchange and shows the forfeiture of shares as a result of a failure by some shareholders to meet a call on the shares.

Question 8

AASB 110 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 9

Sundowner Ltd called for subscriptions for 2 million shares.The issue price per share is $6.00 to be paid in three parts: the first payment of $3.00 is to be made on application,$2.00 is to be paid within 1 month of allotment and the remaining $1.00 is to be paid within 6 months of allotment.At the end of July,when applications close,applications for 5 million shares have been received.Two million share applicants were unsuccessful,while the remaining 3 million applicants were allotted shares on 1 August on a pro rata basis with the excess application money to be applied against the amount due on allotment.The first and final call on the shares is made on 1October.Assume all amounts on allotment and call are paid by the due date.What are the accounting entries to record these events?

Accepted Answer

A) 
  
B) 
  
C) 
  
D) 
  
A) 
  
B) 
  
C) 
  
D)

Question 10

Fraser Ltd issued 10 million shares at a price of $3 on 1 July 2012.The subscribers are required to pay $1 on application,$1 on allotment and the balance on call to be announced at a later date.The share issue was oversubscribed by 2 million shares.On 1 August 2012 the shares were allotted to all subscribers on a pro rata basis.What is the balance of the 'allotment account' and 'share capital' for this share issue on 1 August 2012,respectively?

Accepted Answer

A)  $8 million; $20 million 
B)  $8 million; $30 million 
C)  $10 million; $20 million 
D)  $10 million; $30 million 
A)  $8 million; $20 million 
B)  $8 million; $30 million 
C)  $10 million; $20 million 
D)  $10 million; $30 million

Question 11

Flag Ltd has received applications for 4 million shares during July 2014.The shares are to be issued at a price of $2.75 per share.The 4 million shares are allotted on 15 August 2014.What are the accounting entries required to record these events?

Accepted Answer

A) 
  
B) 
  
C) 
  
D) 
  
A) 
  
B) 
  
C) 
  
D)

Question 12

Where there is a redemption of preference shares 'out of profit':

Accepted Answer

A)  The redemption is recorded in the appropriations section of the profit and loss account. 
B)  The redemption is recorded as an expense. 
C)  The redemption is recorded as a liability and is amortised over a maximum of five years. 
D)  The redemption is not recorded in the current period. 
A)  The redemption is recorded in the appropriations section of the profit and loss account. 
B)  The redemption is recorded as an expense. 
C)  The redemption is recorded as a liability and is amortised over a maximum of five years. 
D)  The redemption is not recorded in the current period.

Question 13

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.

Question 14

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 15

A redeemable preference share is one that may be:

Accepted Answer

A)  converted into debt at the option of the shareholder. 
B)  converted into cash at the option of either the company or the shareholder. 
C)  forgiven any future calls where the company has profits in excess of specified levels. 
D)  have any dividends converted into further preference shares rather than receiving them in cash. 
A)  converted into debt at the option of the shareholder. 
B)  converted into cash at the option of either the company or the shareholder. 
C)  forgiven any future calls where the company has profits in excess of specified levels. 
D)  have any dividends converted into further preference shares rather than receiving them in cash.

Question 16

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 17

When a company redeems preference shares:

Accepted Answer

A)  It must ensure it has sufficient cash reserves to do so. 
B)  It must do so out of profits other than those available for the issuing of dividends. 
C)  It must issue fresh shares to fund the redemption. 
D)  None of the given answers are correct. 
A)  It must ensure it has sufficient cash reserves to do so. 
B)  It must do so out of profits other than those available for the issuing of dividends. 
C)  It must issue fresh shares to fund the redemption. 
D)  None of the given answers are correct.

Question 18

Where new investors are offered the opportunity to buy new shares this will have the effect of diluting the existing shareholders' interest in the company.

Accepted Answer

A) True 
 B)False

Question 19

Cartoon Ltd is listed on the Australian 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 Ltd 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) 
  
B) 
  
C) 
  
D) 
  
A) 
  
B) 
  
C) 
  
D)

Question 20

Giggles Ltd has 2 million shares issued.The directors have elected,with the support of a resolution passed at a general meeting,to undertake a 1: 2 share split so that there will be 4 million issued shares.The shares were originally issued at a price of $2 each.What is the summary entry to record the share split?

Accepted Answer

A) 
$$\begin{array} { | l | l | l | l | } 
\hline \mathrm { Dr } & \text { Retained profits } & 1000000 & \
\hline \mathrm { Cr } & \text { Share capital-ordinary shares } & & 1000000 \
\hline
\end{array}$$ 
B) 
$$\begin{array} { | l | l | l | l | } 
\hline \mathrm { Dr } & \text { Retained profits } & 2000000 & \
\hline \mathrm { Cr } & \text { Share capital-ordinary shares } & & 2000000 \
\hline
\end{array}$$ 
C) 
$$\begin{array} { | l | l | l | l | } 
\hline \mathrm { Dr } & \text { Cash at bank } & 2000000 & \
\hline \mathrm { Cr } & \text { Share capital-ordinary shares } & & 2000000 \
\hline
\end{array}$$ 
D)  None of the given answers are correct. 
A) 
$$\begin{array} { | l | l | l | l | } 
\hline \mathrm { Dr } & \text { Retained profits } & 1000000 & \
\hline \mathrm { Cr } & \text { Share capital-ordinary shares } & & 1000000 \
\hline
\end{array}$$ 
B) 
$$\begin{array} { | l | l | l | l | } 
\hline \mathrm { Dr } & \text { Retained profits } & 2000000 & \
\hline \mathrm { Cr } & \text { Share capital-ordinary shares } & & 2000000 \
\hline
\end{array}$$ 
C) 
$$\begin{array} { | l | l | l | l | } 
\hline \mathrm { Dr } & \text { Cash at bank } & 2000000 & \
\hline \mathrm { Cr } & \text { Share capital-ordinary shares } & & 2000000 \
\hline
\end{array}$$ 
D)  None of the given answers are correct.

Exam 13: Share Capital and Reserves

If a company is listed on the Australian Stock Exchange and a shareholder fails to pay amounts owing on shares,the company will:

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

When a share split occurs:

Reserves form part of the shareholders' funds.

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

Which of the following statements correctly describes this journal entry: Cash at bank 160000 Forfeited shares account 40000 Share capital 200000 Forfeited shares account 2500 Cash at bank 2500

AASB 110 Events After the Reporting Period specifically prohibits the recognition of dividends as a liability at the end of the reporting period if:

Flag Ltd has received applications for 4 million shares during July 2014.The shares are to be issued at a price of $2.75 per share.The 4 million shares are allotted on 15 August 2014.What are the accounting entries required to record these events?

Where there is a redemption of preference shares 'out of profit':

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

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

A redeemable preference share is one that may be:

Share splits are conducted because it is believed that:

When a company redeems preference shares:

Where new investors are offered the opportunity to buy new shares this will have the effect of diluting the existing shareholders' interest in the company.

An Overview of the Australian External Reporting Environment

The Conceptual Framework of Accounting and Its Relevance to Financial Reporting

Theories of 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

Accounting for Heritage Assets and Biological Assets

An Overview of Accounting for Liabilities

Accounting for Leases

Accounting for Employee Benefits

Accounting for Financial Instruments

Revenue Recognition Issues

The Statement of Comprehensive Income and Statement of Changes in Equity

Accounting for Share-Based Payments

Accounting for Income Taxes

The Statement of Cash Flows

Accounting for the Extractive Industries

Accounting for General Insurance Contracts

Accounting for Superannuation Plans

Events Occurring After the End of the Reporting Period

Segment Reporting

Related Party Disclosures

Earnings Per Share

Accounting for Group Structures

Further Consolidation Issues I: Accounting for Intragroup Transactions

Further Consolidation Issues II: Accounting for Non-Controlling Interests

Further Consolidation Issues IV: Accounting for Changes in the Degree of Ownership of a Subsidiary

Accounting for Equity Investments,including Investments in Associates and Joint Arrangements

Accounting for Foreign Currency Transactions

Translating the Financial Statements of Foreign Operations

Accounting for Corporate Social Responsibility

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