Share Capital and Reserves

Question 1

What does ‘called-up share capital’ represent in a company’s balance sheet?
A. The total market value of issued shares
B. The total nominal value of shares the company has asked shareholders to pay
C. The amount of dividends paid to shareholders
D. The total profit after tax

Answer 1

B – The total nominal value of shares the company has asked shareholders to pay
Explanation: Called-up share capital is the amount the company has required shareholders to pay on their shares, excluding any premium.

Question 2

Which of the following is a capital reserve and typically not distributable to shareholders?
A. Retained earnings
B. Accrued interest
C. Share premium account
D. Net profit

Answer 2

C – Share premium account
Explanation: The share premium account is a capital reserve and cannot normally be used to pay dividends.

Question 2

A company issues 100,000 shares with a nominal value of £1 each at a price of £2. What will be recorded in the share premium account?
A. £100,000
B. £50,000
C. £100,000
D. £200,000

Answer 2

C – £100,000
Explanation: The premium is the difference between issue price (£2) and nominal value (£1), which is £1 per share × 100,000 = £100,000.

Question 3

Pine Ltd revalues a property from £200,000 to £250,000. How is this £50,000 increase recorded?
A. In the share capital account
B. As retained earnings
C. As a dividend to shareholders
D. In the revaluation reserve

Answer 3

D – In the revaluation reserve
Explanation: Revaluation gains are unrealised and therefore recorded in the revaluation reserve, not as profit or distributable earnings.

Question 4

Which of the following correctly describes a revenue reserve?
A. Share premium account
B. Retained earnings
C. Capital redemption reserve
D. Revaluation reserve

Answer 4

B – Retained earnings
Explanation: Retained earnings are profits available for distribution to shareholders and are therefore a revenue reserve.

Question 5

What impact does a revaluation reserve have on the net asset value (NAV) of a company?
A. It decreases the NAV
B. It increases the NAV but is not distributable
C. It is a realised gain and increases revenue
D. It has no effect on NAV

Answer 5

B – It increases the NAV but is not distributable
Explanation: A revaluation reserve increases the company’s equity but represents unrealised profit, so it is not available for distribution.

Question 6

Beta Ltd has 50,000 £1 shares issued, and shareholders have paid only 60p per share. What is the called-up share capital?
A. £50,000
B. £20,000
C. £30,000
D. £60,000

Answer 6

C – £30,000
Explanation: 60p × 50,000 shares = £30,000 called-up capital (not yet fully paid).

Question 7

Which of the following reserves would likely be adjusted when a company sells a revalued asset and realises a gain?
A. Share premium account
B. Retained earnings
C. Called-up share capital
D. Revaluation reserve

Answer 7

D – Revaluation reserve
Explanation: Once the gain is realised (asset sold), the reserve may be reduced and profits may be transferred to retained earnings.