Deck 3: Reserves and Profit Distribution

Question 1

Until recently,shares were issued with a:

A)face value
B)premium value
C)nominal value
D)par value

Answer 1

D

Question 2

Disclosure rules for reporting changes in shareholders' equity are contained in the

A)statement of cash flows
B)statement of changes in equity
C)statement of comprehensive income
D)statement of financial position

Answer 2

B

Question 3

The premium on the sale of a share would have been recorded in the:

A)forfeited shares reserve
B)general reserve
C)share premium reserve
D)asset revaluation reserve

Answer 3

C

Question 4

Briefly discuss the taxation issues relating to company dividends.

Question 5

The most common voluntary reserves are:

A)a capital profits reserve and a specific reserve
B)a general reserve and a capital profits reserve
C)a general reserve and a hedging reserve
D)a general reserve and a specific reserve

Question 6

Which of the following is the principle which places restrictions on the return of contributed equity to shareholders?

A)equity restriction
B)capital restriction
C)capital maintenance
D)none of the above

Question 7

When a share dividend is declared there is:

A)a decrease in total shareholders' equity
B)no change in total shareholders' equity
C)an increase in retained earnings
D)an increase in total shareholders' equity

Question 8

The dividend determined at the end of the financial year is known as the:

A)last dividend
B)first dividend
C)interim dividend
D)final dividend

Question 9

Total comprehensive income comprises all components of:

A)profit or loss and other comprehensive income
B)assets and liabilities
C)revenue and expenses
D)none of the above

Question 10

What is the process of incorporating in the statement of financial position or the statement of comprehensive income an item that meets the definition and recognition criteria of an element known as?

A)creation
B)recognition
C)measurement
D)none of the above

Question 11

One of the main principles of the Corporations Act 2001 has been the protection of those dealing with the company including:

A)the creditors
B)the shareholders
C)the employees
D)all of the above

Question 12

Recoverable amount is defined as:

A)the higher of an asset's fair value less costs to sell and its value in use
B)the lower of an asset's carrying amount and its book value
C)the higher of an asset's carrying amount and its book value
D)the lower of an asset's fair value less costs to sell and its value in use

Question 13

An appropriation of profits to satisfy the shareholders' entitlement to receive a portion of the profits is commonly known as a/an:

A)asset
B)dividend
C)expense
D)revenue

Question 14

In the past,reserves were divided into:

A)expense reserves and revenue reserves
B)equity reserves and asset reserves
C)asset reserves and revenue reserves
D)capital reserves and revenue reserves

Question 15

Any dividends reinvested as shares under a dividend reinvestment plan should be reported as a/an:

A)current asset
B)operating activity
C)non- current liability
D)non- cash investing and financing activity

Question 16

Contributed equity does not include which of the following:

A)ordinary shares
B)retained earnings
C)preference shares
D)other financial instruments

Question 17

Under recent amendments to the Corporations Act,a company may now pay dividends when:

A)the payment is fair and reasonable to the company's shareholders as a whole
B)the dividend will not materially prejudice the company's ability to pay its creditors
C)the company's assets exceed its liabilities immediately before the dividend is declared and the excess is sufficient for the payment of the dividend
D)all of the above

Question 18

Dividends are usually recommended by the:

A)creditors
B)employees
C)shareholders
D)directors

Question 19

The entry to record the payment of an interim dividend includes a:

A)Debit to Interim dividend payable
B)Credit to Interim dividend payable
C)Credit to Bank
D)both A and C

Question 20

Retained earnings represent:

A)the undistributed profits of the company
B)the previously distributed profits of the company
C)the profits of a company distributed to shareholders in the current year
D)none of the above

Question 21

Explain the major components of shareholders' equity.

Question 22

Explain the sources from which bonus issues of shares can be made other than retained earnings.

Question 23

Explain the most common voluntary reserves.

Question 24

Explain some of the reasons for companies making bonus issues of shares.

Question 25

Identify and explain some of the reserves required under accounting standards.

Question 26

Discuss the legal provisions in the Corporations Act relating to dividends.

Question 27

According to AASB 101: Presentation of Financial Statements,what are the disclosure requirements relating to the statement of changes in equity?

Question 28

Distinguish between interim and final dividends.

Question 29

Describe dividend reinvestment plans and explain the appropriate accounting treatment.