Capital Structure and Finance Costs (Y7C11)

1	The issued share capital of Alpha, a limited liability company, is as follows:
	Ordinary shares of 10c each 8% Redeemable preference shares of 50c each									$ 1,000,000 500,000
	In the year ended 31 October 20X2, the company has paid the preference dividend for the year and an interim dividend of 2c per share on the ordinary shares. A final ordinary dividend of 3c per share was proposed, before the reporting date. What would be recognised for dividends in the equity section of the statement of financial position at 31 October 20X2?
	A	$580,000
	B	$90,000
	C	$130,000
	D	$200,000
2	When a company makes a rights issue of equity shares which of the following effects will the issue have?
	1	Assets are increased
	2	Retained earnings are reduced
	3	Share premium account is reduced
	4	Investments are increased
	A	1 only
	B	1 and 2
	C	3 only
	D	1 and 4
3	A company made an issue for cash of 1,000,000 50c shares at a premium of 30c per share. Which one of the following journal entries correctly records the issue?
			Debit $					Credit $
	A	Share capital Share premium Bank	500,000 300,000					800,000
	B	Bank Share capital Share premium	800,000					500,000 300,000
	C	Bank Share capital Share premium	1,300,000					1,000,000 300,000
	D	Share capital Share premium Bank	1,000,000					300,000 1,300,000
4	At 31 December 20x1 the capital structure of a company was as follows:
	Ordinary share capital 100,000 shares of 50c each Share premium account				$ 50,000 180,000
	During 20X2 the company made a bonus issue of 1 share for every 2 held, using the share premium account for the purpose, and later issued for cash another 60,000 shares at 80c per share. What is the company's capital structure at 31 December 20X2?
		Ordinary share capital $					Share premium account $
	A	130,000					173,000
	B	105,000					173,000
	C	130,000					137,000
	D	105,000					137,000
5	An organisation's year end is 30 September. On 1 January 20X6 the organisation took out a loan of $100,000 with annual interest of 12%. The interest is payable in equal instalments on the first day of April, July, October and January in arrears. How much should be charged to the statement of profit or loss (SPL) for the year ended 30 September 20X6, and how much should be accrued on the statement of financial position (SOFP)?
		SPL					SOFP
	A	$12,000					$3,000
	B	$9,000					$3,000
	C	$9,000					NIL
	D	$6,000					$3,000
6	Which of the following statements about company financial statements is/are correct, according to International Financial Reporting Standards?
	1	Dividends paid on ordinary shares should be included in the statement of profit or loss and other comprehensive income.
	2	Dividends paid on redeemable preference shares are treated in the same way as dividends paid on ordinary shares.
	3	The statement of profit or loss and other comprehensive income shows the gain on revaluation of non-current assets for the period.
	A	1, 2 and 3
	B	2 and 3
	C	3 only
	D	All three statements are correct
7	At 30 June 20X2 a company's capital structure was as follows:
	Ordinary share capital 500,000 shares of 25c each Share premium account				$ 125,000 100,000
	In the year ended 30 June 20X3 the company made a rights issue of 1 share for every 2 held at $1 per share and this was taken up in full. Later in the year the company made a bonus issue of 1 share for every 5 held, using the share premium account for the purpose. What was the company's capital structure at 30 June 20X3?
		Ordinary share capital $					Share premium account $
	A	450,000					25,000
	B	225,000					250,000
	C	225,000					325,000
	D	212,500					262,500
8	At 30 June 20X2 a company had $1m 8% loan notes in issue, interest being paid half-yearly on 30 June and 31 December. On 30 September 20X2 the company redeemed $250,000 of these loan notes at par, paying interest due to that date. On 1 April 20X3 the company issued $500,000 7% loan notes, interest payable half-yearly on 31 March and 30 September. What figure should appear in the company's statement of profit or loss for interest payable in the year ended 30 June 20X3?
	A	$88,750
	B	$82,500
	C	$65,000
	D	$73,750
9	A limited liability company issued 50,000 ordinary shares of 25c each at a premium of 50c per share. The cash received was correctly recorded but the full amount was credited to the ordinary share capital account. Which one of the following journal entries is needed to correct this error?
				Debit $		Credit $
	A	Share premium account Share capital account		25,000		25,000
	B	Share capital account Share premium account		25,000		25,000
	C	Share capital account Share premium account		37,500		37,500
	D	Share capital account Cash		25,000		25,000
10	Which one of the following journal entries could correctly record a bonus issue of shares?
				Debit $		Credit $
	A	Cash Ordinary share capital		100,000		100,000
	B	Ordinary share capital Share premium		100,000		100,000
	C	Share premium Ordinary share capital		100,000		100,000
	D	Investments Cash		100,000		100,000
11	Which of these statements about limited liability companies is/are correct?
	1	A company might make a bonus issue of shares to raise funds for expansion.
	2	No cash is received when a company makes a rights issue of shares, instead other reserves (usually share premium) are capitalised and reclassified as share capital.
	3	A rights issue of shares dilutes the shareholding of existing shareholders if they do not take up their rights.
	A	1 and 3
	B	2 and 3
	C	1 and 2
	D	3 only
12	At 1 January 20X0 the capital structure of Q, a limited liability company, was as follows:
	Issued share capital 1,00,000 ordinary shares of 50c each Share premium account								$ 500,000 300,000
	On 1 April 20X0 the company made an issue of 200,000 50c shares at $1.30 each, and on 1 July the company made a bonus (capitalisation) issue of one share for every four in issue at the time, using the share premium account for the purpose. Which of the following correctly states the company's share capital and share premium account at 31 December 20X0?
		Share capital					Share premium account
	A	$750,000					$230,000
	B	$875,000					$285,000
	C	$750,000					$310,000
	D	$750,000					$310,000
13	According to the illustrative financial structure in IAS 1 Presentation of financial statements, where should dividends paid during the year should be disclosed?
	A	Statement of profit or loss and other comprehensive income
	B	Statement of changes in equity
	C	Statement of financial position
	D	None of these