AS Level Accounting - Limited Company

Which of the following is a characteristic of a limited company?

• Unlimited liability

• Ownership and management are separate

• Profits are not taxed

• Sole trader ownership

What is the main advantage of issuing shares over obtaining a loan?

• No repayment obligation for share capital

• Shareholders are paid before creditors

• Dividends must be paid every year

• Shares are a liability to the company

A company issues 10,000 ordinary shares at $5 each. What is the total ordinary share capital?

• $10,000

• $50,000

• $5,000

• $25,000

What are bonus shares?

• Shares issued at a premium

• Shares issued to reward employees

• Shares issued to existing shareholders at no cost

• Shares issued to the public for cash

What happens to a company’s total equity when bonus shares are issued?

• It increases

• It decreases

• It remains unchanged

• It depends on the issue price

6. A company offers a rights issue of 1 new share for every 5 shares held at $2 per share. If a shareholder owns 50 shares, how much will they pay for the rights issue?

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• 6. $10

• 6. $20

• 6. $40

• 6. $50

Answer explanation

6. Rights Issue Payment = (Shares Held ÷ Rights Ratio) × Price per Share = (50 ÷ 5) × $2 = $20

Which account is debited (reduced) when bonus shares are issued? More than 1 answer.

• Retained Earnings

• Share Premium

• Ordinary Share Capital

• Revaluation Reserve

What is a dividend?

• A portion of profits distributed to shareholders

• A fixed amount paid to creditors

• A reserve fund for future expenses

• A method to reduce share capital

9. If a company declares a final dividend of $0.50 per share for 20,000 shares, what is the total dividend amount?

• 9. $10,000

• 9. $20,000

• 9. $5,000

• 9. $15,000

Answer explanation

9. Total Dividend = Dividend per Share × Number of Shares = $0.50 × 20,000 = $10,000

Dividends on preference shares are paid:

• Before tax

• After ordinary dividends

• Before ordinary dividends

• Only if there is a profit