Companies

Match the following :

• Shareholders

• Are the owners of the company

• Directors

• Dividends declared at the end of the financial year but not yet been paid, and will be paid at the beginning of the next of the financial year.

• Buy-back of shares

• Dividends Declared and paid during the financial year

• Final dividends

• also known as a “Shares Repurchase”, is a company’s buying back its shares from the marketplace. You can think of a buy-back as a company investing in itself, or using its cash to buy its own shares.

• Interim dividends

• They are directly appointed by the shareholders

Match the following

• Authorised share capital

• Financial statements must disclose items that are important to the users/readers so that correct evaluations and decisions can be made from the information provided

• Public company

• Income earned and expenses incurred must be reported in the same financial period so that the correct net profit is calculated.

• Prudence

• All possible losses are recorded in the Income statement but anticipated profits are not reported until they are realized.

• Materiality

• Owned by the shareholders who are members of the general public and trade shares publicly.

• Matching

• The total number of shares that the company is allowed to issue to the public as stipulated in Memorandum of Incorporation.

Choose the correct GAAP principal for the following :

Rent has been received for 13 months. Rent for 12 months is shown in the Income Statement

• matching

• materiality

• prudence

• going concern

choose the correct GAAP principal :

The owner of the business wins R2 000 in a competition. This is not shown in the Income Statement of the business.

• going concern

• materiality

• historical cost

• business entity

Choose the correct GAAP principle :

Land and buildings are shown in the Balance Sheet at R500 000, although the market value is estimated at R800 000.

• Going concern

• Historical cost

Choose the correct GAAP principle :

Trading stock is shown in the Balance sheet at R10 000 but the business would only get R7 000 if the stock were to be sold at a flea market the next day.

• going concern

• prudence

Choose the correct GAAP principle:

Cleaning materials bought for R25 are shown as part of Sundry Operating Expenses in the Income Statement.

• prudence

• business entity

• historical cost

• materiality

Give two reasons why will a company buy back its shares ?

Answer explanation

 Fear of losing control of the company

 Company shares are undervalued

 Reduce the equity capital of the company

Briefly explain what is meant by:

Issue price

Answer explanation

It the price at which shares were issued

Explain what is interim dividends and final dividends ?

Answer explanation

Interim dividends

 Dividends declared during the financial year and it is paid within the current year.

Final dividends

 Dividends declared at the end of the financial and is subject to approval by board of directors. √