Limited company financial statements

Topic 19: Limited Company Financial Statements — 50 Hard MCQs

1. A company has 200 000 ordinary shares of $0.50 each. It issues 80 000 additional ordinary shares at $0.80 each.

What amount is credited to ordinary share capital?

A $24 000
B $40 000
C $64 000
D $140 000

2. Using the information in Question 1, what amount is credited to share premium?

A $24 000
B $40 000
C $64 000
D $104 000

3. A company has ordinary share capital of $150 000, share premium of $28 000, retained earnings of $76 000 and revaluation reserve of $34 000. It has 8% debentures of $50 000 repayable in 7 years.

What is total equity?

A $238 000
B $288 000
C $338 000
D $388 000

4. Using the information in Question 3, what is shown as a non-current liability?

A $50 000 debentures
B $28 000 share premium
C $34 000 revaluation reserve
D $76 000 retained earnings

5. A company’s opening retained earnings are $84 000. Profit for the year is $46 000. Interim dividend paid is $8000. Final dividend declared before year end is $12 000. Transfer to general reserve is $10 000.

What are closing retained earnings?

A $100 000
B $110 000
C $120 000
D $130 000

6. A company’s opening retained earnings are $120 000. Profit for the year is $52 000. A final ordinary dividend of $18 000 is proposed after the reporting date and has not been declared before year end.

What are closing retained earnings?

A $102 000
B $120 000
C $154 000
D $172 000

7. A company has 400 000 ordinary shares of $1 each. It declares a dividend of $0.08 per share before the year end.

What is the dividend liability?

A $3200
B $32 000
C $400 000
D $432 000

8. A company has 600 000 ordinary shares of $0.25 each. It pays an interim dividend of $0.04 per share.

What amount is deducted from retained earnings?

A $6000
B $24 000
C $150 000
D $174 000

9. Which item is shown in equity?

A bank overdraft
B debenture interest payable
C share premium
D trade payables

10. Which item is shown as a liability?

A retained earnings
B general reserve
C ordinary share capital
D debentures repayable after five years

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

11. A company has profit from operations of $88 000. Debenture interest is $6000. Tax is $18 000.

What is profit for the year?

A $64 000
B $70 000
C $82 000
D $88 000

12. A company has 10% debentures of $120 000. Interest for the year has not yet been paid.

What is the double entry for debenture interest?

A Debit debenture interest $12 000, credit debenture interest payable $12 000
B Debit debentures $12 000, credit bank $12 000
C Debit retained earnings $12 000, credit debentures $12 000
D Debit debenture interest payable $12 000, credit debenture interest $12 000

13. A company has 6% debentures of $80 000. Interest of $2400 has already been paid for the first six months. The year-end adjustment is required.

What amount is accrued at year end?

A $0
B $2400
C $4800
D $82 400

14. A company has operating profit $96 000. Debenture interest paid was $3000. Debenture interest owing at year end is $1500. Tax charge is $20 000.

What is profit for the year?

A $71 500
B $73 000
C $76 000
D $93 000

15. Which statement about debenture interest is correct?

A it is deducted from retained earnings as an appropriation
B it is deducted in the income statement as a finance cost
C it is paid only if ordinary dividends are paid
D it increases share premium

16. Which statement about ordinary dividends is correct?

A they are finance costs
B they are expenses before profit for the year
C they are distributions of profit
D they increase profit for the year

17. A company’s profit before tax is $75 000. Tax for the year is $19 000. Opening retained earnings are $66 000. Dividends paid are $14 000.

What are closing retained earnings?

A $108 000
B $122 000
C $127 000
D $146 000

18. A company has opening retained earnings of $92 000. Profit before tax is $64 000. Tax is $16 000. Transfer to general reserve is $7000. Dividends are $12 000.

What are closing retained earnings?

A $109 000
B $125 000
C $132 000
D $141 000

19. Which item appears in the statement of changes in equity?

A trade payables
B depreciation expense only
C ordinary dividends
D bank overdraft

20. Which item does not appear in equity?

A ordinary share capital
B share premium
C revaluation reserve
D debenture interest payable

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

21. A company revalues land from carrying value $180 000 to $235 000.

What is the effect on equity?

A revaluation reserve increases by $55 000
B retained earnings increases by $55 000
C share premium increases by $55 000
D ordinary share capital increases by $55 000

22. A company has the following balances.

Item	$
ordinary share capital	300 000
share premium	45 000
retained earnings	88 000
revaluation reserve	60 000
9% debentures	100 000
trade payables	34 000
bank overdraft	12 000

What is total equity?

A $433 000
B $493 000
C $593 000
D $639 000

23. Using the information in Question 22, what are total liabilities?

A $46 000
B $100 000
C $146 000
D $193 000

24. A company has non-current assets of $520 000, current assets of $180 000, current liabilities of $92 000 and non-current liabilities of $160 000.

What is total equity?

A $268 000
B $448 000
C $608 000
D $700 000

25. A company has equity of $480 000, non-current liabilities of $120 000 and current liabilities of $75 000.

What are total assets?

A $435 000
B $555 000
C $600 000
D $675 000

26. A company’s statement of financial position shows total assets $860 000, current liabilities $140 000 and non-current liabilities $210 000. Share capital is $300 000 and share premium is $60 000.

What are total reserves?

A $150 000
B $210 000
C $360 000
D $510 000

27. A company has opening general reserve $40 000. During the year, $15 000 is transferred from retained earnings to general reserve.

What is closing general reserve?

A $25 000
B $40 000
C $55 000
D $95 000

28. What is the effect of a transfer from retained earnings to general reserve?

A total equity increases
B total equity decreases
C total equity stays the same
D liabilities increase

29. A company has opening retained earnings $100 000. Profit for the year is $45 000. Transfer to general reserve is $15 000. No dividends are paid.

What are closing retained earnings?

A $85 000
B $100 000
C $130 000
D $145 000

30. A company has opening retained earnings $75 000. It makes a loss for the year of $18 000 and pays dividends of $6000.

What are closing retained earnings?

A $51 000
B $57 000
C $63 000
D $99 000

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

31. A company issues 50 000 ordinary shares of $1 each at $1.30.

What is the effect?

A share capital increases by $65 000 only
B share capital increases by $50 000 and share premium increases by $15 000
C share capital increases by $15 000 and share premium increases by $50 000
D retained earnings increases by $65 000

32. A company has 100 000 ordinary shares of $0.50 each. It issues 40 000 ordinary shares at $0.75.

What is total ordinary share capital after the issue?

A $50 000
B $70 000
C $80 000
D $105 000

33. Using the information in Question 32, what is total share premium created by the new issue?

A $10 000
B $20 000
C $30 000
D $40 000

34. Which statement about share premium is correct?

A it is the excess of issue price over nominal value
B it is profit earned from trading
C it is a non-current liability
D it is deducted from share capital

35. A company has share capital $200 000, share premium $30 000, retained earnings $90 000 and general reserve $40 000. It transfers $20 000 from retained earnings to general reserve.

What is total equity after the transfer?

A $320 000
B $340 000
C $360 000
D $380 000

36. A company’s opening equity is $500 000. During the year, it issues shares for cash of $80 000, earns profit for the year of $60 000, pays dividends of $25 000 and revalues land upward by $40 000.

What is closing equity?

A $555 000
B $615 000
C $655 000
D $705 000

37. A company’s opening equity is $420 000. It makes a loss of $35 000, pays dividends of $12 000 and issues shares for $70 000.

What is closing equity?

A $343 000
B $373 000
C $443 000
D $537 000

38. A company has profit from operations $150 000. Finance costs are $18 000. Tax is $36 000. Dividends paid are $24 000.

What is profit for the year?

A $72 000
B $96 000
C $108 000
D $132 000

39. Using the information in Question 38, what amount is deducted in the statement of changes in equity as distribution to shareholders?

A $18 000
B $24 000
C $36 000
D $96 000

40. A company has current assets $92 000, non-current assets $240 000, current liabilities $64 000, debentures repayable in 10 years $100 000, ordinary share capital $120 000 and share premium $30 000.

What are retained earnings?

A $18 000
B $82 000
C $112 000
D $168 000

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

41. A company has 5% debentures of $200 000. Interest for 9 months has been paid. The financial year ends before the last 3 months’ interest is paid.

What debenture interest payable is shown as a current liability?

A $2500
B $7500
C $10 000
D $200 000

42. A company has ordinary share capital $500 000, share premium $80 000, retained earnings $140 000 and debentures $120 000. It makes a bonus issue of $50 000 from share premium.

What is total equity after the bonus issue?

A $670 000
B $720 000
C $770 000
D $840 000

43. Using the information in Question 42, what is the share premium balance after the bonus issue?

A $30 000
B $50 000
C $80 000
D $130 000

44. A company declares a final dividend before year end of $16 000 but does not pay it until after year end.

How is this shown at year end?

A current liability and deduction from retained earnings
B non-current asset and income
C finance cost and non-current liability
D share premium and current asset

45. A company pays an interim dividend of $9000 during the year.

How is this treated?

A deducted from retained earnings
B deducted from profit before tax
C added to share premium
D recorded as finance cost

46. A company has opening retained earnings $68 000. Profit after tax is $41 000. Interim dividend paid is $7000. Final dividend declared before year end is $11 000. A transfer from general reserve to retained earnings is $5000.

What are closing retained earnings?

A $86 000
B $91 000
C $96 000
D $132 000

47. A company has ordinary share capital $250 000, share premium $60 000 and retained earnings $95 000. It pays a dividend of $20 000.

What is total equity after the dividend?

A $385 000
B $405 000
C $425 000
D $445 000

48. Which statement about a revaluation reserve is correct?

A it arises when a non-current asset is revalued upwards
B it is created from cash received from shareholders
C it is a current liability
D it is used to record debenture interest

49. Which statement about retained earnings is correct?

A retained earnings are accumulated profits not distributed to shareholders
B retained earnings are always equal to cash at bank
C retained earnings are a non-current liability
D retained earnings are the same as share premium

50. Which statement about limited company financial statements is correct?

A debenture interest is an appropriation of profit
B ordinary dividends are deducted before calculating profit for the year
C share premium is part of equity
D retained earnings are shown as current liabilities

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

1. B — $40 000

• Ordinary share capital is recorded at nominal value.

• New shares issued = 80 000

• Nominal value = $0.50

• Share capital credited = 80 000 × 0.50

• = $40 000

2. A — $24 000

• Issue price = $0.80

• Nominal value = $0.50

• Premium per share = $0.30

• Share premium = 80 000 × 0.30

• = $24 000

3. B — $288 000

• Total equity = ordinary share capital + share premium + retained earnings + revaluation reserve

• = 150 000 + 28 000 + 76 000 + 34 000

• = $288 000

• Debentures are liabilities, not equity.

4. A — $50 000 debentures

• Debentures repayable in 7 years are non-current liabilities.

• Share premium, revaluation reserve and retained earnings are equity.

5. A — $100 000

• Closing retained earnings = opening retained earnings + profit – dividends – transfer to reserve

• = 84 000 + 46 000 – 8000 – 12 000 – 10 000

• = $100 000

6. D — $172 000

• Proposed final dividend after the reporting date is not deducted if it was not declared before year end.

• Closing retained earnings = 120 000 + 52 000

• = $172 000

7. B — $32 000

• Dividend = number of shares × dividend per share

• = 400 000 × 0.08

• = $32 000

8. B — $24 000

• Interim dividend = 600 000 × $0.04

• = $24 000

• Nominal value of shares is irrelevant for dividend per share.

9. C — share premium

• Share premium is part of equity.

• It is the excess received above nominal value when shares are issued.

10. D — debentures repayable after five years

• Debentures are borrowings.

• If repayable after more than one year, they are non-current liabilities.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

11. A — $64 000

• Profit from operations = $88 000

• Less debenture interest = $6000

• Less tax = $18 000

• Profit for the year = 88 000 – 6000 – 18 000

• = $64 000

12. A — Debit debenture interest $12 000, credit debenture interest payable $12 000

• Annual interest = 10% × 120 000 = $12 000

• Interest is an expense.

• If unpaid, it creates a current liability.

13. B — $2400

• Total annual interest = 6% × 80 000 = $4800

• Already paid = $2400

• Accrued interest = 4800 – 2400

• = $2400

14. A — $71 500

• Total debenture interest = paid + owing

• = 3000 + 1500 = $4500

• Profit for the year = 96 000 – 4500 – 20 000

• = $71 500

15. B — it is deducted in the income statement as a finance cost

• Debenture interest is an expense.

• It is paid to lenders, not shareholders.

• It must be charged before calculating profit for the year.

16. C — they are distributions of profit

• Ordinary dividends are appropriations/distributions of profit.

• They are not expenses.

• They are deducted from retained earnings.

17. A — $108 000

• Profit after tax = 75 000 – 19 000 = $56 000

• Closing retained earnings = 66 000 + 56 000 – 14 000

• = $108 000

18. No correct option — correct answer is $121 000

• Profit after tax = 64 000 – 16 000 = $48 000

• Closing retained earnings = opening retained earnings + profit after tax – transfer to reserve – dividends

• = 92 000 + 48 000 – 7000 – 12 000

• = $121 000

• Transfer to general reserve reduces retained earnings, even though total equity stays the same.

19. C — ordinary dividends

• Ordinary dividends appear in the statement of changes in equity.

• They reduce retained earnings.

20. D — debenture interest payable

• Debenture interest payable is a current liability.

• It is not part of equity.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

21. A — revaluation reserve increases by $55 000

• Carrying value = $180 000

• Revalued amount = $235 000

• Revaluation surplus = 235 000 – 180 000

• = $55 000

• This increases revaluation reserve.

22. B — $493 000

• Total equity = share capital + share premium + retained earnings + revaluation reserve

• = 300 000 + 45 000 + 88 000 + 60 000

• = $493 000

23. C — $146 000

• Liabilities = debentures + trade payables + bank overdraft

• = 100 000 + 34 000 + 12 000

• = $146 000

24. B — $448 000

• Total assets = 520 000 + 180 000 = $700 000

• Total liabilities = 92 000 + 160 000 = $252 000

• Equity = 700 000 – 252 000

• = $448 000

25. D — $675 000

• Total assets = equity + liabilities

• = 480 000 + 120 000 + 75 000

• = $675 000

26. A — $150 000

• Total equity = total assets – total liabilities

• = 860 000 – 140 000 – 210 000

• = $510 000

• Total reserves = equity – share capital – share premium

• = 510 000 – 300 000 – 60 000

• = $150 000

27. C — $55 000

• Opening general reserve = $40 000

• Transfer from retained earnings = $15 000

• Closing general reserve = 40 000 + 15 000

• = $55 000

28. C — total equity stays the same

• Retained earnings decrease.

• General reserve increases.

• Both are equity reserves.

• Total equity is unchanged.

29. C — $130 000

• Closing retained earnings = 100 000 + 45 000 – 15 000

• = $130 000

30. A — $51 000

• Closing retained earnings = opening retained earnings – loss – dividends

• = 75 000 – 18 000 – 6000

• = $51 000

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

31. B — share capital increases by $50 000 and share premium increases by $15 000

• Shares issued = 50 000

• Nominal value = $1

• Share capital increase = 50 000 × 1 = $50 000

• Premium per share = 1.30 – 1.00 = $0.30

• Share premium = 50 000 × 0.30 = $15 000

32. B — $70 000

• Existing share capital = 100 000 × 0.50 = $50 000

• New share capital = 40 000 × 0.50 = $20 000

• Total ordinary share capital = 50 000 + 20 000

• = $70 000

33. A — $10 000

• Premium per share = 0.75 – 0.50 = $0.25

• Share premium = 40 000 × 0.25

• = $10 000

34. A — it is the excess of issue price over nominal value

• Share premium is created when shares are issued above nominal value.

• It is part of equity, not a liability.

35. C — $360 000

• Total equity before transfer = 200 000 + 30 000 + 90 000 + 40 000

• = $360 000

• Transfer from retained earnings to general reserve does not change total equity.

• Total equity remains $360 000

36. C — $655 000

• Closing equity = opening equity + share issue + profit – dividends + revaluation surplus

• = 500 000 + 80 000 + 60 000 – 25 000 + 40 000

• = $655 000

37. C — $443 000

• Closing equity = 420 000 – 35 000 – 12 000 + 70 000

• = $443 000

38. B — $96 000

• Profit for the year = profit from operations – finance costs – tax

• = 150 000 – 18 000 – 36 000

• = $96 000

• Dividends are not deducted in arriving at profit for the year.

39. B — $24 000

• Dividends paid are distributions to shareholders.

• They are deducted in the statement of changes in equity.

40. A — $18 000

• Total assets = 92 000 + 240 000 = $332 000

• Total liabilities = 64 000 + 100 000 = $164 000

• Total equity = 332 000 – 164 000 = $168 000

• Retained earnings = equity – share capital – share premium

• = 168 000 – 120 000 – 30 000

• = $18 000

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.

41. A — $2500

• Annual interest = 5% × 200 000 = $10 000

• Unpaid period = 3 months

• Accrued interest = 10 000 × 3/12

• = $2500

42. B — $720 000

• Equity before bonus issue:

  • ordinary share capital = $500 000

  • share premium = $80 000

  • retained earnings = $140 000

• Total equity = $720 000

• Bonus issue transfers within equity.

• Total equity remains $720 000

43. A — $30 000

• Opening share premium = $80 000

• Bonus issue from share premium = $50 000

• Closing share premium = 80 000 – 50 000

• = $30 000

44. A — current liability and deduction from retained earnings

• Final dividend declared before year end becomes an obligation.

• It is deducted from retained earnings.

• If unpaid, it is shown as a current liability.

45. A — deducted from retained earnings

• Interim dividend is a distribution of profit.

• It is deducted from retained earnings, not charged as an expense.

46. C — $96 000

• Closing retained earnings = opening retained earnings + profit after tax – interim dividend – final dividend + transfer from general reserve

• = 68 000 + 41 000 – 7000 – 11 000 + 5000

• = $96 000

47. A — $385 000

• Equity before dividend = 250 000 + 60 000 + 95 000

• = $405 000

• Dividend paid = $20 000

• Equity after dividend = 405 000 – 20 000

• = $385 000

48. A — it arises when a non-current asset is revalued upwards

• Revaluation reserve records upward revaluation gains on non-current assets.

• It is part of equity.

49. A — retained earnings are accumulated profits not distributed to shareholders

• Retained earnings are profits kept in the company.

• They are not the same as cash, share premium or liabilities.

50. C — share premium is part of equity

• Share premium is an equity reserve.

• Debenture interest is an expense.

• Ordinary dividends are distributions after profit.

• Retained earnings are equity, not current liabilities.

Written and Compiled By Sir Hunain Zia (AYLOTI), World Record Holder With 154 Total A Grades, 11 World Records and 7 Distinctions, Educate A Change.