Multiple choice

1. Choose the incorrect statement in regard to repurchase of shares

a) Share repurchase enables a company to return surplus funds to shareholders, tax-free

b) A company may hold up to 10% of shares in a share class itself, that are not immediately cancelled, which are called treasury stock

c) For companies to repurchase their shares, the terms of such repurchase must be in agreement with the terms as set out in the company constitution

d) Shares purchased back by a company may be either cancelled or held as treasury stock; treasury stock are shares owned and held by the company that issued the shares

2. Choose the incorrect statement in regard to NZ IAS 1 and the disclosure requirements for company share capital and reserves

a) The rights, preferences and restrictions on various classes of shares should be disclosed

b) A company should disclose the number of shares issued, both fully paid and not fully paid

c) The statement of financial performance should disclose both capital and reserves

d) Equity capital and reserves should be disaggregated into various classes such as paid-in capital, share premiums and reserves

3. Choose the correct statement in regard to the dividends and the solvency test, given the following information.

The directors of Bustid Ltd, an IT company, are considering the payment of a $900,000 dividend from the companys current annual profit of $1,500,000. The last set of audited financial statements (before payment of the dividend) showed the following amounts:

	$
Current Assets	3,400,000
Intangible Assets	900,000
Property, Plant & Equipment (net)	3,900,000
Total Assets	8,200,000
Current Liabilities	2,100,000
Non-current Liabilities	4,500,000
	6,600,000

4. There was also a contingent liability, being a court case for a trademark dispute, which Bustids legal team estimate will cost the company around $500,000.

The intangible assets consist primarily of internally-developed computer software programs.

a) The dividends are permitted; the company satisfies the liquidity part of the solvency test; the liquidity part of the solvency test gives a positive figure, $400,000

b) The dividends are not permitted; the company does not satisfy the liquidity part of the solvency test; the liquidity part of the solvency test gives a negative figure, -$100,000

c) The dividends are permitted; the company satisfies the financial position (balance sheet) part of the solvency test; the financial position part of the solvency test gives a positive figure, $700,000

d) The dividends are permitted; the company satisfies the financial position (balance sheet) part of the solvency test; the financial position part of the solvency test gives a positive figure, $200,000

5. Suppose Ajax Ltd fails the solvency test for the payment of dividends, but still goes ahead and pays those dividends out; which of the following is not an expected outcome under the Companies Act?

a) The dividend may be recoverable from the shareholders; i.e., the shareholders may have to pay the dividend back

b) If shareholders are unable to pay back part or all of the dividend, the directors may be liable for any balance owing

c) The directors will only have to pay back dividends if they are also shareholders

d) The directors are liable for prosecution