SHAREHOLDERS’ EQUITY
QUIZ QUESTIONS
1. What is a share? (1 mark)

Answer: A share is an unit of ownership that represents an equal proportion of a company's capital. It entitles its holder (the shareholder) to an equal claim on the company's profits and an equal obligation for the company's debts and losses.

2. Identify two advantages of a private placement of shares as compared with a public issue. (1 mark)

Answer: 1. The investor can get positive allotment.
2. The investor can get high number of shares.
3. The share value can be lower many a times.
4. The company doesn't need to provide as much disclosure to investors.

3. The shareholders of Quinninup Ltd hold 25 000 A class ordinary shares, fully paid at $4.50 each. On 17 April
The forfeited shares are to be reissued as paid to $2.00 on payment of $1.85 cash per share. Refunds are to be made to the former shareholders. The shares were reissued on 23 July 2013 and refund cheques mailed on 31 July 2013.

Required Prepare the journal entries to record the above events, show all workings. (3 marks)

Answer:
Date
Accounting Title
Debit ($)
Credit($)
3 Jul 2013
Share capital
Calls
Forfeited shares liability
13000

3900

9100
(forfeiture of 6500 shares)
23 Jul 2013
Cash
Forfeited shares liability
Share capital
12025

975

13000
(reissue of share)
31 Jul 2013
Forfeited shares liability Cash
8125

8125
(return of surplus to ex-shareholders)

12. How does a bonus issue of shares differ from all other share issues? (1 mark) Answer: A bonus issue also known as a share dividend is an issue of shares to shareholders in proportion to their current holdings. Retained earnings or any reserve can be used to fund the bonus issue. Once issued the shares have the same standing as all other shares.

13. On 30 September 2012 Northcliffe Ltd sold 40 000 options for $1.20 each. Each option allows the holder to acquire one new ordinary share for $2.75 cash, payable on exercise. Options must be