These eight questions use original figures. Try each one on paper before opening the answer, and check your working as well as the final number.
The set belongs to the limited companies chapter. For timed practice on your own topics, try the timed original practice session builder.
Questions
Question 1. Classify each item as equity, non-current liability or current liability: (a) ordinary share capital RM90 000, (b) general reserve RM10 000, (c) bank loan due in six years RM40 000, (d) trade payables RM14 000, (e) retained profits RM22 000.
Answer
Shareholders own (a), (b) and (e), so they are equity. The loan in (c) is owed to the bank after more than a year, so it is a non-current liability. Trade payables in (d) are current liabilities.
Total equity = 90 000 + 10 000 + 22 000 = RM122 000.
Question 2. A company has ordinary share capital RM150 000, general reserve RM20 000, retained profits RM35 000 and a bank loan RM50 000. Find total equity.
Answer
The bank loan is a liability, so leave it out. Equity = 150 000 + 20 000 + 35 000 = RM205 000.
Question 3. A company issues 30 000 ordinary shares at RM1.50 each for cash. Write the journal entry.
Answer
Cash received = 30 000 × 1.50 = RM45 000. Debit Bank RM45 000, credit Ordinary share capital RM45 000.
Question 4. Profit for the year is RM48 000, opening retained profits RM12 000, dividends RM18 000 and a transfer to general reserve RM5 000. Find closing retained profits.
Answer
12 000 + 48 000 = 60 000. Deduct the dividend and the transfer: 60 000 − 18 000 − 5 000 = RM37 000.
Question 5. A clerk records a dividend paid of RM10 000 as debit Dividend expense, credit Bank. Explain the error and give the correct entry.
Answer
A dividend is a share-out of profit, not an expense of earning it, so it must not reduce the profit for the year. The correct entry is debit Retained profits RM10 000, credit Bank RM10 000. If the dividend was declared earlier, debit Dividends payable instead of Retained profits.
Question 6. A company has revenue RM260 000, cost of sales RM150 000, expenses RM55 000, loan interest RM5 000 and tax RM10 000. Opening retained profits are RM8 000 and dividends are RM15 000. Find profit for the year and closing retained profits.
Answer
Gross profit = 110 000. Less expenses and interest: 110 000 − 55 000 − 5 000 = 50 000 profit before tax. Less tax: RM40 000 profit for the year.
Closing retained profits = 8 000 + 40 000 − 15 000 = RM33 000.
Question 7. Hassan buys RM20 000 of ordinary shares in a company. His friend lends the company RM20 000. Explain who is an owner, what each receives, and where each amount appears.
Answer
Hassan is an owner, and his RM20 000 appears as ordinary share capital in equity. He may receive dividends. His friend is a lender, so the RM20 000 is a liability, and the friend receives interest and repayment of the loan.
Question 8. State two differences between drawings and dividends.
Answer
Drawings are taken by the owner of a business that is not separate from its owner, but dividends are declared by a company and paid to shareholders. Drawings reduce capital, while dividends reduce retained profits.
If you got these wrong
Question 1 or 2 means revisiting distinguishing share capital, reserves and liabilities. Questions 4 and 6 point to reading company financial statements.
Questions 3 and 5 belong to recording permitted capital transactions. Questions 7 and 8 belong to ownership and reporting differences.
Use the mistake log and paper-error review tool to record the pattern. If you want a teacher to go through your working, see online one-to-one Accounting tuition.