Sample Quiz For Preparation: Limited Companies

O Level Accounting – Chapter 5.3: Limited Companies

Q1.
What is the primary reason limited liability is attractive to potential investors?

A) It guarantees a fixed income return
B) It protects personal assets from business losses
C) It ensures control over company decisions
D) It allows avoidance of tax obligations

Answer: B
Explanation:
Limited liability means shareholders are only responsible for company debts up to the amount invested in shares. Their personal assets are not at risk.

Q2.
Which of the following is classified as equity in a limited company’s balance sheet?

A) Bank loan
B) Debentures
C) General reserve
D) Accrued expenses

Answer: C
Explanation:
General reserve is part of shareholders’ equity, made from retained profits. Bank loans and debentures are liabilities, while accrued expenses are current liabilities.

Q3.
Which statement about preference shares is correct?

A) They provide voting rights to shareholders
B) They always pay variable dividends
C) They must be redeemed after a fixed period
D) They are paid dividends before ordinary shares

Answer: D
Explanation:
Preference shareholders receive dividends before ordinary shareholders. They usually do not have voting rights and may be redeemable or non-redeemable.

Q4.
Which of the following best represents the capital structure of a limited company?

A) Fixed assets + current liabilities
B) Trade receivables + inventory + bank overdraft
C) Preference share capital + retained earnings + general reserve + ordinary share capital
D) Sales – cost of sales + expenses

Answer: C
Explanation:
The capital structure includes all long-term sources of finance contributed by shareholders and retained in the business.

Q5.
Which component would not appear in the Statement of Changes in Equity?

A) Debentures
B) Retained earnings
C) Ordinary share capital
D) General reserve

Answer: A
Explanation:
Debentures are non-equity liabilities and are shown in the liabilities section of the balance sheet, not in the equity statement.

Q6.
A company issues 5,000 shares of Rs. 10 each. Rs. 8 per share is called up and Rs. 6 per share is paid up. What is the called-up share capital?

A) Rs. 30,000
B) Rs. 40,000
C) Rs. 50,000
D) Rs. 60,000

Answer: B
Explanation:
Called-up capital = 5,000 shares × Rs. 8 = Rs. 40,000

Q7.
Which of the following is true about ordinary shareholders?

A) They receive fixed dividends
B) They are paid before debenture holders during liquidation
C) They have voting rights and control the company
D) They are not entitled to residual profits

Answer: C
Explanation:
Ordinary shareholders have control through voting rights. They receive variable dividends and are last in line during liquidation.

Q8.
What distinguishes redeemable preference shares from non-redeemable preference shares?

A) Redeemable shares have voting rights
B) Redeemable shares must be repaid by the company
C) Non-redeemable shares pay higher interest
D) Non-redeemable shares are issued only to directors

Answer: B
Explanation:
Redeemable preference shares can be bought back by the company at a future date, making them temporary capital.

Q9.
Which of the following would be included in a limited company’s income statement?

A) General reserve
B) Interest on debentures
C) Retained earnings
D) Share capital

Answer: B
Explanation:
Interest on debentures is an expense and appears in the income statement. Reserves and capital are part of the statement of changes in equity and balance sheet.

Q10.
What is the correct formula to calculate total equity?

A) Non-current assets – current liabilities
B) Issued capital + general reserve + debentures
C) Ordinary share capital + retained earnings + reserves
D) Total assets + total liabilities

Answer: C
Explanation:
Total equity includes ordinary share capital, retained earnings, and any reserves. Debentures are liabilities and not part of equity.