Shares can be issued in exchange for cash, property, or services provided to the corporation. For instance, an investor could give a truck in exchange for a companys shares. Another investor could provide legal fees in exchange for shares. The general rule is to recognize the assets received in exchange for stock at the assets fair market value. The company can issue Equity share capital to the public if it is registered as an SAOG. Some companies also issue Preference shares. SAOC companies cannot issue shares to the public.

The following questions are related to the shares

Question 11

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A company was able to acquire a plant, with a market value of RO 10 million, by issuing five million ordinary shares of RO1 each. When accounting for the acquisition of land and the issue of shares, how much should be debited to the Share Premium account?

a.

RO 10 million

b.

RO 3 million

c.

RO 1 million

d.

RO 5 million

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Question 12

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Company Nabil has in issue 500,000 RO 1 equity shares with a current market value of RO 3.5 each. It also has a balance of RO 90,000 in its share premium account and RO 100,000 in its bank account before such issue. The abstract of SOFP will show:

a.

Equity Share capital RO 1,750,000, Share premium RO 90,000 and Bank Account RO 100,000

b.

Equity Share capital RO 1,840,000 and Bank Account RO 100,000

c.

Equity Share capital RO 500,000, Share premium RO 90,000 and Bank Account RO 100,000

d.

Equity Share capital RO 590,000 and Bank Account RO 100,000

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Question 13

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Ibrahim Company SAOG has in issue 600,000 RO 1 equity shares in 2015. The current market value of the equity share is RO 2.5 each. It also has a balance of RO 75,000 in its share premium account and RO 80,000 in its bank account. The abstract of SOFP will show:

a.

Equity Share capital 600,000, Share premium RO 975,000 and Bank Account RO 80,000

b.

Equity Share capital RO 675,000 and Bank Account SRO 80,000

c.

Equity Share capital RO 600,000, Share premium RO 75,000 and Bank Account RO 80,000

d.

Equity Share capital RO 1,500,000, Share premium RO 75,000 and Bank Account RO 80,000

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Question 14

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Company XYZ has been around for five years. During this time, it reported the following net income:Year 1: RO (70,000), Year 2: RO (55,000); Year 3: RO 185,000; Year 4: RO 125,000; Year 5: RO 190,000. Company XYZ paid no dividends till year 4 but for year 5 it paid dividend at the rate of 50 baiza each on its equity shares. The company till then had issued 4,000,000 share of RO 0.500 each fully paid. You are required to calculate the retained earning balance for 5 years?

a.

(RO 25,000)

b.

RO 375,000

c.

RO 185,000

d.

RO 175,000

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Question 15

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A company was able to acquire a building, with a market value of RO 8 million, by issuing four million ordinary shares of RO1 each. When accounting for the acquisition of land and the issue of shares, how much should be credited to the Share Premium account?

a.

RO 6 million

b.

RO 10 million

c.

RO 2 million

d.

RO 4 million