Limited Companies (Copy)
Topic 5.3: Limited Companies – Quiz
O Level and IGCSE Accounting
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course
1. What is a key feature of a limited company?
A. Unlimited liability
B. Personal ownership
C. Separate legal identity
D. Only one owner
2. Limited liability means that:
A. The company cannot be sued
B. Shareholders are liable only up to their investment
C. The directors are not responsible for debts
D. The company has no liabilities
3. Which of the following is an advantage of a limited company?
A. More privacy in accounts
B. Simple structure
C. Ability to raise capital through shares
D. Lower tax rate
4. Which of these is a disadvantage of operating as a limited company?
A. Unlimited liability
B. Losses cannot be shared
C. Complex formation and regulation
D. Owner makes all decisions
5. The term ‘equity’ refers to:
A. Total assets
B. Total liabilities
C. Share capital plus reserves
D. Loan capital
6. Which of the following is an equity item?
A. Debentures
B. Preference shares
C. Trade payables
D. Overdrafts
7. Which is not a component of equity?
A. Ordinary share capital
B. General reserve
C. Loan capital
D. Retained earnings
8. Issued share capital means:
A. Capital yet to be called
B. Shares offered to the public
C. Total authorized shares
D. Total called-up shares
9. Called-up capital is:
A. Paid capital
B. Capital that is authorized
C. Portion of issued capital requested from shareholders
D. Capital not yet paid by public
10. Paid-up capital refers to:
A. Total capital the company has registered
B. The amount shareholders have paid on shares
C. Reserves generated through profit
D. Value of fixed assets
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course
11. Which of the following is considered loan capital?
A. Retained earnings
B. Ordinary shares
C. Debentures
D. Share premium
12. Which of the following appears in the income statement of a limited company?
A. Share capital
B. General reserve
C. Revenue
D. Debentures
13. Preference dividends are:
A. Paid only if profit is made
B. Paid before ordinary dividends
C. Based on retained earnings
D. Optional for directors
14. Which of the following statements is true?
A. Ordinary shareholders have fixed dividend rights
B. Preference shareholders have voting rights
C. Ordinary shareholders are residual claimants
D. Preference shareholders always get paid after tax
15. General reserve is created from:
A. Loan capital
B. Authorized capital
C. Retained profits
D. Share premium
16. Retained earnings are:
A. Capital raised from the public
B. Profits not distributed as dividends
C. Fixed assets
D. Part of debentures
17. A company prepares a statement of changes in equity to show:
A. Changes in total liabilities
B. Adjustments in capital employed
C. Movements in equity components
D. Changes in current assets
18. What is shown in a statement of financial position under non-current liabilities?
A. General reserve
B. Retained earnings
C. Debentures
D. Preference shares
19. Redeemable preference shares are:
A. Returned to shareholders at maturity
B. Never paid back
C. Convertible to debentures
D. Part of current assets
20. What type of capital remains in the company permanently?
A. Debentures
B. Redeemable shares
C. Non-redeemable preference shares
D. Trade payables
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course
21. Which of the following is typically NOT adjusted in financial statements of a company?
A. Depreciation
B. Accrued income
C. Share premium
D. Irrecoverable debts
22. Which account shows net profit before appropriation?
A. Statement of changes in equity
B. Trading account
C. Income statement
D. Statement of financial position
23. Which of the following affects retained earnings?
A. Ordinary share issue
B. Payment of dividends
C. Authorized capital
D. Provision for depreciation
24. Which is NOT shown in a limited company’s equity section?
A. Ordinary share capital
B. General reserve
C. Debentures
D. Retained earnings
25. Debentures are classified as:
A. Equity
B. Assets
C. Loan capital
D. Revenue
26. Which adjustment reduces equity?
A. Sale of goods
B. Provision for doubtful debts
C. Increase in preference capital
D. Payment of dividends
27. Authorized share capital is:
A. Capital issued to shareholders
B. Capital company is allowed to issue
C. Paid-up capital
D. Equal to retained earnings
28. Which capital is shown in the statement of financial position?
A. Authorized
B. Issued and paid-up
C. Only called-up
D. General reserve
29. Retained earnings increase when:
A. Net profit is earned and not fully distributed
B. Shares are bought back
C. Debentures are issued
D. Loans are repaid
30. The equity section of a limited company includes all EXCEPT:
A. Retained earnings
B. Ordinary share capital
C. Preference share capital
D. Debentures
Answer key and explanations
Topic 5.3 – Limited Companies
O Level and IGCSE Accounting
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course
1. Correct Answer: C
Explanation: A limited company has a separate legal identity from its owners (shareholders).
2. Correct Answer: B
Explanation: Limited liability means shareholders only lose the amount they invested if the company fails.
3. Correct Answer: C
Explanation: Limited companies can raise capital more easily by issuing shares.
4. Correct Answer: C
Explanation: Forming and running a limited company involves legal complexity and regulations.
5. Correct Answer: C
Explanation: Equity includes ordinary share capital, preference share capital, reserves, and retained earnings.
6. Correct Answer: B
Explanation: Preference shares are part of equity as they represent ownership interest.
7. Correct Answer: C
Explanation: Loan capital is not part of equity; it’s a liability.
8. Correct Answer: B
Explanation: Issued share capital is the portion of authorized capital offered to shareholders.
9. Correct Answer: C
Explanation: Called-up capital is the amount shareholders are asked to pay on their shares.
10. Correct Answer: B
Explanation: Paid-up capital is the amount shareholders have actually paid for their shares.
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course
11. Correct Answer: C
Explanation: Debentures are a form of long-term loan capital issued by a company.
12. Correct Answer: C
Explanation: Revenue is part of the income statement. Share capital and reserves are not.
13. Correct Answer: B
Explanation: Preference shareholders are paid dividends before ordinary shareholders.
14. Correct Answer: C
Explanation: Ordinary shareholders receive profits after all other claims, including preference dividends.
15. Correct Answer: C
Explanation: General reserve is created from retained profits as a safety or reinvestment buffer.
16. Correct Answer: B
Explanation: Retained earnings are past profits not paid as dividends, reinvested into the business.
17. Correct Answer: C
Explanation: Statement of changes in equity shows movement in equity items like reserves and profits.
18. Correct Answer: C
Explanation: Debentures are shown under non-current liabilities in the balance sheet.
19. Correct Answer: A
Explanation: Redeemable preference shares must be repaid by the company at a future date.
20. Correct Answer: C
Explanation: Non-redeemable preference shares form part of permanent capital.
21. Correct Answer: C
Explanation: Share premium is not required in this syllabus and isn’t adjusted like expense items.
22. Correct Answer: C
Explanation: The income statement shows the net profit before appropriation.
23. Correct Answer: B
Explanation: Retained earnings reduce when dividends are paid to shareholders.
24. Correct Answer: C
Explanation: Debentures are long-term liabilities, not part of equity.
25. Correct Answer: C
Explanation: Debentures represent borrowed funds that must be repaid with interest.
26. Correct Answer: D
Explanation: Dividends reduce retained earnings, thus reducing equity.
27. Correct Answer: B
Explanation: Authorized capital is the maximum capital a company is legally allowed to issue.
28. Correct Answer: B
Explanation: Issued and paid-up capital is shown in the statement of financial position, not authorized capital.
29. Correct Answer: A
Explanation: If profit is retained and not distributed, retained earnings increase.
30. Correct Answer: D
Explanation: Debentures are loan capital, shown as liabilities, not equity.
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change O Level And IGCSE Accounting Full Scale Course