Deck 5: Company Finance

Question 1

Which one of the following statements regarding companies is true?

A) Every company must issue ordinary and preference shares.
B) Company shareholders are protected by limited liability.
C) A company does not have a separate legal identity to its owners.
D) The existence of a company is dependent on the continued existence of its shareholders.

Answer 1

B

Question 2

Limited liability means that:

A) The liability of a company is restricted to the amount it owes its suppliers and lenders.
B) The liability of the shareholders is restricted to the amount of dividends they have received.
C) The liability of the company is restricted to the amount it owes its shareholders.
D) The liability of the shareholders is restricted to the amount they have invested in the company.

Answer 2

D

Question 3

The accounts for Mark Ltd for the last financial year show preference dividends paid amounted to £12,000, and ordinary dividends of £30,000 were paid. If the company has issued 4% preference shares of £1 each, how many preference shares have been issued?

A) 120,000
B) 600,000
C) 300,000
D) 480,000

Answer 3

C

Question 4

Which one of the following statements regarding preference shares is true?

A) Preference shareholders are usually repaid last, in the event that the company is wound up.
B) Preference shares do not usually carry a fixed rate of dividend.
C) The preference dividend has to be paid before the ordinary dividend can be paid.
D) Preference shareholders usually have the right to vote at company meetings.

Question 5

Williams plc has issued 2,000,000 £1 ordinary shares and 1,200,000 5% preference shares of £1 each. If the directors pay an ordinary dividend of 6 pence per ordinary share and the full amount payable to the preference shareholders is paid, which one of the following is true?

A) The ordinary dividend payable would be £120,000 and the preference dividend payable will be £72,000.
B) The ordinary dividend payable would be £100,000 and the preference dividend payable will be £72,000.
C) The ordinary dividend payable would be £120,000 and the preference dividend payable will be £60,000.
D) The ordinary dividend payable would be £100,000 and the preference dividend payable will be £60,000.

Question 6

Which one of the following features of debentures is true?

A) Debentures never carry a fixed rate of interest.
B) Debenture interest is a not an allowable expense for tax purposes.
C) Debentures holders are not usually given any security for their loans.
D) Debenture interest has to be paid.

Question 7

Which of the following is NOT a source of long-term funding for limited companies?

A) Debentures issued.
B) Ordinary shares issued.
C) Dividends paid.
D) Preference shares issued.

Question 8

Tash Ltd has issued both ordinary shares and cumulative preference shares. If no dividends are paid for the year ended 31 December 2022, which one of the following statements regarding the company's dividends is true?

A) and 2023 must be paid before any ordinary dividend is paid for 2023.
B) The preference dividend for 2023 must be paid before any ordinary dividend is paid for 2023.
C) The ordinary dividend for 2023 must be paid before any preference dividend is paid for 2023.
D) The ordinary dividend for both 2022 and 2023 must be paid before any preference dividend is paid for 2023.

Question 9

Which of the following is NOT a benefit of a company obtaining a listing on a stock exchange:

A) It will allow the company to raise new capital.
B) It will ensure an increasing value for the company's shares.
C) It will enable existing shareholders to sell their shares more easily.
D) It will raise the profile of the company.

Question 10

Greta owns 10,000 £1 ordinary shares and 5,000 £1 preference shares in Jing plc. The preference shares pay a 5% dividend. During the year ended 31 December, she received total dividends of £600 from the company. The dividend paid per ordinary share was:

A) 12 pence.
B) 6 pence.
C) 35 pence.
D) 3.5 pence.