Applying IFRS Standards 4th Edition Ruth Picker - Test Bank

Multiple Choice Questions

1.         For-profit companies may be

Learning Objective 2.2 Describe in general terms what a for-profit company is

            I           Unlimited

            II          Listed

            III         Limited by guarantee

            IV         No-liability

            a.         II and III only;

b.           I, II and III only;

c.            II, III and IV only;

*d.          I, II, III and IV.

2.         Which of the following statements is incorrect?

Learning Objective 2.3 Outline the key features of the corporate structure

a.      Each share in a company carries a right to share in the assets on the liquidation of the company;

*b.     Each share in a company carries a right to share proportionately in all new share issues of a company;

c.            A share represents an ownership right in a company;

d.           Each share in a company carries a right to vote for directors of the company.

3.         In respect to the issue of shares by a company, what is an IPO?

Learning Objective 2.5 Account for the issue of both no-par and par value shares

a.           Investment in Preference and Ordinary shares;

*b.          Initial Public Offering of shares;

c.            Investment Prospectus for an issue of Options;

d.           Instruments Providing Options to ordinary shareholders.

4.         When a public share issue is made, the offer comes from:

Learning Objective 2.5 Account for the issue of both no-par and par value shares

a.           the company issuing the shares;

b.           the relevant oversight body once it has reviewed the prospectus documentation;

c.            the broker handing the share issue for the company;

*d.          the applicant.

5.      ABC Ltd was registered as a corporation on 1 July 2016.  On 4 July 2016, ABC Ltd issued a prospectus offering 100 000 ordinary shares at an issue price of £2.50 each, payable £1.50 on application and £1.00 on allotment.

Application closed on 1 August 2016 with the company having received applications for 110 000 shares.  The shares were allotted on 15 August 2016, with the over-subscription amount being refunded to unsuccessful applicants.  All allotment monies were received by 31 August 2016.  Following the allotment the balance in the Share Capital account would be:

Learning Objective 2.5 Account for the issue of both no-par and par value shares

a.           £100 000 Credit;

*b.          £250 000 Credit;

c.            £100 000 Debit;

d.           £250 000 Debit.

Use the following information to answer questions 6 to 8.

A company’s capital consists of 50 000 ordinary shares issued at £2 and paid to £1 per share.

On 1 September, a first call of 50c was made on the ordinary shares.  By 30 September, the call money received amounted to £22 500.  No further payments were received, and on 31 October, the shares on which calls were outstanding were forfeited.  On 15 November, the forfeited shares were reissued as paid to £1.50 for a payment of £1 per share.  The appropriate cash amount from the reissue was received on 19 November.  Costs of reissue amounted to £2 000.  The company’s constitution provided for any surplus on resale, after satisfaction of unpaid calls, accrued interest and costs, to be returned to the shareholders whose shares were forfeited.

6.         The entry to record the forfeiture of shares is:

Learning Objective 2.5 Account for the issue of both no-par and par value shares

*a.	Share capital	Dr	7 500
	First Call – Ordinary shares	Cr		2 500
	Forfeited shares	Cr		5 000
b.	Share capital	Dr	7 500
	First call – Ordinary shares	Cr		5 000
	Forfeited shares	Cr		2 500
c.	Share capital	Dr	5 000
	Forfeited shares	Cr		5 000
d.	Forfeited shares	Dr	2 500
	Share capital	Cr		2 500

7.         The entry to record the reissue of forfeited shares is:

Learning Objective 2.5 Account for the issue of both no-par and par value shares

*a.	Cash	Dr	5 000
	Forfeited shares	Dr	2 500
	Share capital – Ordinary	Cr		7 500
b.	Cash	Dr	2 500
	Forfeited shares	Dr	2 500
	Share capital – Ordinary	Cr		5 000
c.	Cash	Dr	5 000
	Share capital – Ordinary	Cr		5 000
d.	Share capital	Dr	7 500
	Forfeited shares	Cr		7 500

8.         The amount of the surplus payable to the shareholders whose shares were forfeited is:

Learning Objective 2.5 Account for the issue of both no-par and par value shares

a.           £5000;

*b.          £500;

c.            £2500;

d £3000.

9.      If the balance in a forfeited shares account is refundable to the owners of those shares, then the forfeited shares account is classified as a component of:

Learning Objective 2.5 Account for the issue of both no-par and par value shares

a.           income;

*b.          liabilities;

c.            equity;

d.           expense.

10.    The appropriate account to record any excess proceeds received and retained (not refunded) by a company from an oversubscription to a share offer application, is the:

Learning Objective 2.5 Account for the issue of both no-par and par value shares

a.           Share issue costs account;

b.           Forfeited Shares account;

c.            Share capital account;

*d.          Calls in advance account.