A-AS Level (CIE) Accounting Paper-1: Specimen Questions with Answers 65 - 66 of 93

Question 65

Question

MCQ▾

A and B partners sharing profits in the ratio of . From 1st January, 2018 they admit C into partnership giving him share of profits with a guarantee of minimum. A and B continue to share profits as before. Profits of the firms for were .

Choose the correct new profit-sharing ratio of partners.

Choices

Choice (4)

a.

b.

c.

d.

Answer

b.

Explanation

New profit-sharing ratio has been calculated as under:

Because of the admission of the new partner, the old partner is entitled to only of the firm՚s profits which will be divided in their old profit-sharing ratio.

Therefore, the new ratio A, B and C is:

Question 66

Question

MCQ▾

Which one of the following statements is not correct?

Choices

Choice (4)

a.

The partly paid shares, if any, should be made fully paid up before the company can make a bonus issue

b.

Bonus shares can be issued in lieu of dividends

c.

The bonus issue should be out of free reserves built out of the genuine profits or security premium collected in cash only

d.

Bonus shares can be issued out of General Reserves

Answer

b.

Explanation

Bonus means gift or premium which is paid in cash form. A bonus share issue refers to distributing free shares to existing shareholders. Shares owned by the shareholders determines the number of bonus shares a shareholder will receive.

Reasons for a bonus issue:

  • A company has made an extraordinary profit because of good management or a successful strategy. The excess profit is distributed to shareholders in the form of bonus shares to the shareholders.
  • A company may experience a fall in its share price once it is listed on the stock exchange. Bonus issue is distributed to compensate shareholders. This encourages shareholders to keep their shares and stay loyal to the company instead of selling their holdings and driving the down further.

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