SHAREHOLDERS’ EQUITY

1. In accounting for shareholders’ equity, the accountant is concerned with which of the following?
a. Determining the total amount of shareholders’ equity
b. Distinguishing between realized and unrealized revenue
c. Recording the source of each of the various elements of shareholders’ equity
d. Making sure that the directors do not declare dividends in excess of retained earnings
2. The two primary account classifications within shareholders’ equity are
a. Preference shares and retained earnings
b. Ordinary shares and retained earnings
c. Contributed capital and retained earnings
d. Preference shares and ordinary shares
3. Contributed capital does not include
a. Share premium
b. Preference share capital
c. Ordinary share capital
d. Treasury shares
4. Which is not a basic right of a shareholder?
a. The right to participate in earnings.
b. The right to vote in the election of directors and in the determination of policies.
c. The right to share in the net assets of the corporation upon liquidation
d. The right to inspect the accounting records of the corporation.
5. The preemptive right of an ordinary shareholder is the right to
a. Share proportionately in corporate assets upon liquidation.
b. Share proportionately in any new issue of shares of the same class.
c. Receive cash dividends before they are distributed to preference shareholders.
d. Exclude preference shareholders from voting rights.
6. Authorized shares refer to the total number of shares
a. That can be issued
b. Issued
c. Issued and outstanding
d. Held in treasury
7. Outstanding shares are
a. Shares that are performing well in the public market
b. Shares that have been authorized for issue
c. Shares held in the corporate treasury
d. Shares in the hands of shareholders
8. Shares that have a fixed per-share amount printed on each share certificate are called
a. Stated value shares
b. Fixed value shares
c. Uniform value shares
d. Par value shares
9. The par value of a share represents the
a. Liquidation value of the share
b. Book value of the share
c. Legal nominal value assigned to the share
d. Amount received by the corporation when the share is originally issued
10. When collectibility is reasonably assured, the excess of the subscription price over the stated value of the
no par share capital subscribed should be recorded as
a. No par share capital
b. Share premium when the subscription is recorded
c. Share premium when the subscription is collected.
d. Share premium when the shares are issued.
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11. If shares are issued to extinguish a financial liability, what is the initial measurement of the shares issued?
a. Par value of the shares
b. Fair value of the shares
c. Fair value of liability extinguished
d. Book value of the shares
12. Treasury shares are
a. Shares held as an investment by the treasurer of the corporation.
b. Shares held as an investment of the corporation.
c. Issued and outstanding shares.
d. Issued but not outstanding shares.
13. The purchase of treasury ordinary shares
a. Decreases authorized ordinary shares
b. Decreases issued ordinary shares
c. Decreases outstanding ordinary shares
d. Has no effect on ordinary shares outstanding
14. Which statement best describes a possible result of treasury share transactions?
a. May increase but not decrease retained earnings.
b. May increase net income if the cost method is used.
c. May decrease but not increase retained earnings.
d. May decrease but not increase net income.
15. When an entity calls in all of the preference shares for more than the original issue price, the excess over
the original issue price should be
a. Accounted for as loss on exchange
b. Charged against share premium on ordinary shares
c. Charged to a discount on preference shares
d. Charged against retained earnings
16. When preference shares are called in by the issuer for less than original issue price, proper accounting
for the redemption
a. Increases the amount of dividends available to ordinary shareholders
b. Increases the contributed capital of the ordinary shareholders
c. Increases reported income for the period
d. Increases the treasury shares held by the entity
17. Redeemable preference shares should be
a. Included with ordinary shares.
b. Included as liability.
c. Excluded from the statement of financial position.
d. Included as a contra item in shareholders' equity.
18. Dividend paid on redeemable preference shares shall be accounted for as
a. Direct deduction from retained earnings
b. Interest expense as component of finance cost
c. Component of other comprehensive income
d. Deduction from share premium
19. Cumulative preference dividends in arrears should be reported as
a. An increase in current liabilities.
b. An increase in equity.
c. A footnote.
d. An increase in noncurrent liabilities for the current portion liabilities for the long-term portion.
20. Noncumulative preference dividends in arrears
a. Are not paid and not disclosed.
b. Must be paid before any other cash dividend can be distributed.
c. Are disclosed as a liability until paid.
d. Are paid to preference shareholders if sufficient funds remain after payment of the current preference
dividend.
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21. An entity declared a cash dividend on a certain date, payable on another date. Retained earnings would
a. Increase on the date of declaration
b. Not be affected on the date of declaration
c. Not be affected on the date of payment
d. Decrease on the date of payment
22. If share dividend is less than 20%, at what amount should retained earnings be reduced?
a. Zero
b. Par value of shares
c. Fair value on the date of declaration
d. Fair value on the date of issuance
23. The issuer shall directly charge retained earnings for the par value of shares issued in
a. 1 for 5 share dividend
b. 1 for 8 share dividend
c. 4 for 1 share split
d. 2 for 1 share split
24. The declaration and issuance of share dividend
a. Has no effect on assets, liabilities and shareholders’ equity
b. Decreases retained earnings and shareholders’ equity
c. Decreases assets and shareholders’ equity
d. Does not change retained earnings
25. A feature common to both share split and share dividend is
a. A transfer to contributed capital of a corporation.
b. There is no effect on total equity.
c. An increase in total liabilities of a corporation.
d. A reduction in the contributed capital of a corporation.
26. A transfer from retained earnings to share capital equal to the fair value of the shares issued is ordinarily
a characteristic of
a. Either a share dividend or share split
b. Neither a share dividend nor share split
c. Share split but not a share dividend
d. Share dividend but not a share split
27. Which is not a legal restriction related to dividend distribution?
a. The amount distributed must be in compliance with the laws governing corporations.
b. The amount distributed can never exceed the net income reported for the year.
c. Dividend distribution must be formally approved by the board of directors.
d. Dividends must be in full agreement with the capital contracts as to preferences.
28. A retained earnings appropriation is used to
a. Absorb a fire loss when an entity is self-insured
b. Recognize a provision
c. Smooth periodic income
d. Restrict retained earnings available for dividends
29. An appropriation of retained earnings is required by
a. Purchase of property, plant and equipment
b. Purchase of treasury shares
c. Payment of bonds payable
d. Funding of defined benefit plan
30. Which statement is incorrect concerning appropriations of retained earnings?
a. Appropriations of retained earnings do not change the total amount of shareholders’ equity
b. Appropriations of retained earnings reflect funds set aside for a designated purpose
c. Appropriations of retained earnings can be made as a result of contractual requirements
d. Appropriations of retained earnings can be made at the discretion of the board of directors
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IFRIC 17 – DISTRIBUTION OF NONCASH ASSET TO OWNER
31. An entity shall measure a liability to distribute noncash asset to shareholders at
a. Carrying amount of asset
b. Fair value of asset
c. Either carrying amount or fair value of asset
d. Neither carrying amount nor fair value of asset
32. An entity shall adjust the carrying amount of the dividend payable at the end of reporting period and at
the date of settlement with any changes in the carrying amount recognized
a. In equity as adjustment to the amount of distribution.
b. In profit or loss
c. As adjustment of prior period
d. As component of other comprehensive income.
33. When an entity settles the dividend payable, it shall recognize the difference between the carrying
amount of the asset distributed and the carrying amount of the dividend payable is
a. Gain or loss on distribution of property dividend
b. Other comprehensive income
c. Equity
d. Retained earnings
34. An entity shall measure a noncurrent asset classified as held for distribution to owners at
a. Carrying amount
b. Fair value less cost to distribute
c. Lower of carrying amount and fair value less cost to distribute
d. Higher of carrying amount and fair value less cost to distribute
PFRS 2 – SHARE BASED PAYMENT
35. Which of the following transactions involving the issuance of shares does not come within the definition
of share-based payment transaction?
a. Employee share purchase plans
b. Employee share option plans
c. Share-based payment relating to an acquisition of a subsidiary
d. Share appreciation rights
36. Share options are what type of share-based payment transaction?
a. Asset-settled share-based payment transaction
b. Equity-settled share-based payment transaction
c. Cash-settled share-based payment transaction
d. Liability-settled share-based payment transaction
37. Compensation expense resulting from a share option plan is generally
a. Recognized in the period of exercise.
b. Recognized in the period of the grant.
c. Allocated to the periods benefited by the employee's required service.
d. Allocated over the periods of the employee's service life until retirement.
38. In what circumstances is compensation expense immediately recognized under a share option plan?
a. In all circumstances
b. When the options are exercisable within two years
c. When the options are immediately exercisable
d. In no circumstances
39. The total compensation in a share option plan is normally measured at
a. Fair value of share options on the date of grant
b. Fair value of share options on the date of exercise
c. Intrinsic value of share options on the date of grant
d. Intrinsic value of share options on the date of exercise
40. The most important objective of share options is
a. Measuring the compensation expense
b. Measuring fair value
c. Disclosing increases or decreases in the share options
d. Recognition of services rendered
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41. Which technique should not be used as a measure of fair value of share options in the first instance?
a. Black-Sholes model
b. Binomial model
c. Monte-Carlo model
d. Intrinsic value
42. When share options expired and were not exercised, the entity should
a. Adjust retained earnings for compensation recognized during the vesting period
b. Restate the financial statements for the compensation recognized during the vesting period
c. Record the full amount of compensation expense in the current year
d. Not adjust nor reverse the compensation expense recognized during the vesting period
43. Share appreciation rights are what type of share-based payment transaction?
a. Asset-settled share-based payment transaction
b. Liability-settled share-based payment transaction
c. Cash-settled share-based payment transaction
d. Equity-settled share-based payment transaction
44. For share appreciation rights, the measurement date for computing compensation is the
a. Date the rights mature
b. Date the share reaches a predetermined amount
c. Date of grant
d. Date of exercise or settlement
45. Which statement is true regarding share appreciation right?
a. Any change in estimated total compensation is recorded as a prior period error
b. The total amount of compensation is not known until the date the share appreciation right is exercised
c. The liability is adjusted only to reflect each additional year of service
d. The share appreciation right is not recognized
PAS 33 – EARNINGS PER SHARE
46. EPS disclosures are required for
a. Entities whose ordinary shares and potential ordinary shares are publicly traded.
b. Entities that are in the process of issuing ordinary shares in the public market.
c. All entities
d. Entities whose ordinary shares and potential ordinary shares are publicly traded and entities that are
in the process of issuing ordinary shares in public market.
47. When an entity issues both consolidated and separate financial statements, the EPS information is
required
a. For both sets of financial statements
b. In neither set of financial statements
c. Only for consolidated financial statements
d. Only for separate financial statements
48. Earnings per share shall be computed on the basis of
a. Weighted average ordinary shares regardless of fluctuation
b. Ordinary shares outstanding at the end of the year
c. Ordinary shares outstanding at the beginning of the year
d. Weighted average ordinary shares except that minor fluctuations may be disregarded
49. In the computation of weighted average shares outstanding, when a share dividend or share split occurs,
the additional shares are
a. Weighted by the number of days outstanding.
b. Weighted by the number of months outstanding.
c. Considered outstanding at the beginning of the year.
d. Considered outstanding at the beginning of the earliest year reported.
50. Which figure for earnings does EPS information use?
a. Net income attributable to ordinary equity holders and preference shareholders of the parent
b. Income before taxation
c. Income from continuing operations
d. Net income attributable to ordinary equity holders of the parent
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51. In calculating dilutive potential ordinary shares, the figure used as the “control number” is
a. Income after tax including discontinued operations
b. Income from continuing operations
c. Income before tax including discontinued operations
d. Retained earnings for the year after dividends
52. Options and warrants are dilutive if
a. The option shares represent fifty percent of the ordinary shares actually outstanding.
b. The option price is equal to the average market price.
c. The option price is higher than the average market price.
d. The option price is lower than the average market price.
53. At what point are dilutive potential shares deemed to have been converted into ordinary shares?
a. At the start of period
b. At the end of period
c. The date of issue of the dilutive shares
d. At the start of period or if later, at the date of issue of the dilutive potential shares
54. Earnings per share should always be shown separately for
a. Income from continuing operations
b. Discontinued operations
c. Net income
d. All of these require separate EPS presentation
55. Antidilutive securities
a. Should be included in the computation of diluted earnings per share.
b. Are those whose inclusion would decrease basic earnings per share.
c. Include share options whose exercise price is less than the average market price.
d. Should be ignored in all earnings per share calculations.

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