FAC1601 ASSIGNMENT 1 SEMESTER 1
2026
Financial Accounting for Companies
150 Questions and Verified Answers | Graded A+ | Full Assignment Coverage
SECTION A: COMPANIES – SHARE CAPITAL AND LEGAL FRAMEWORK
Questions 1–30
Question 1
What is the primary legislative framework governing companies in South Africa?
A) The Companies Act 61 of 1973
B) The Close Corporations Act 69 of 1984
C) The Companies Act 71 of 2008
D) The Income Tax Act 58 of 1962
Correct answer: C
Rationale: The Companies Act 71 of 2008 is the current legislation governing companies in
South Africa, replacing the 1973 Act. This Act modernized company law and introduced
significant changes such as the removal of par value for shares .
Question 2
Authorised share capital represents:
A) The total number of shares currently issued to shareholders
B) The amount received in excess of the par value
C) The maximum number of shares a company is permitted to issue
D) The portion of retained earnings available for dividends
Correct answer: C
,Rationale: Authorised share capital is the maximum number and value of shares that a
company can issue as stipulated in its Memorandum of Incorporation (MOI). It represents the
ceiling on share issuance without amending the MOI .
Question 3
Which account is credited when a company issues shares at a price above the par value?
A) Share Capital
B) Retained Earnings
C) Share Premium
D) Revaluation Reserve
Correct answer: C
Rationale: The share premium account records the excess amount received over the par value
of the shares. This account is part of equity and represents additional paid-in capital .
Question 4
According to IFRS and the Companies Act 71 of 2008, which statement is true regarding the
"par value" of shares?
A) It is the market value of the share
B) It is the minimum price at which shares can be issued
C) It is a nominal value and has no legal significance under the Companies Act 71 of 2008
D) It determines the dividend amount
Correct answer: C
Rationale: Under the Companies Act 71 of 2008, par value is largely obsolete and has been
removed for many types of shares. Shares can be issued without a par value, reflecting a
modern approach to share capital regulation .
Question 5
"Underwriting" in a share issue refers to:
,A) Selling shares at a discount
B) An agreement to purchase any shares not subscribed for by the public
C) The legal process of transferring shares
D) A type of preference share
Correct answer: B
Rationale: An underwriter (typically an investment bank) guarantees to buy any shortfall in a
share issue, ensuring the company raises the intended capital regardless of public subscription
levels .
Question 6
What is the "pre-emptive right" of an existing shareholder?
A) The right to vote at AGMs
B) The right to receive dividends before creditors
C) The right to maintain their proportional ownership by buying new shares before the public
D) The right to sell shares back to the company
Correct answer: C
Rationale: A pre-emptive right allows existing shareholders to purchase new shares in
proportion to their current holdings before the company offers them to the general public,
protecting them from dilution of ownership .
Question 7
A "subscriber" to the Memorandum of Incorporation (MOI) is:
A) A person who buys shares on the stock exchange
B) A person who signs the MOI and agrees to take at least one share
C) An external auditor
D) A trade creditor
Correct answer: B
Rationale: Subscribers are the founding persons who sign the MOI and agree to take at least
one share each. This is a prerequisite for company incorporation .
, Question 8
Which statement correctly describes the difference between equity and liabilities?
A) Equity holders receive fixed interest; liability holders receive dividends
B) Equity represents ownership, while liabilities represent debt owed to external parties
C) Both are classified the same under IFRS
D) Liabilities are only short-term
Correct answer: B
Rationale: Equity represents the residual interest in the assets of the company after deducting
liabilities. Liabilities are obligations to transfer economic benefit to external parties .
Question 9
If a company issues redeemable preference shares that must be repaid in 5 years, how are they
classified in the financial statements?
A) Equity
B) Financial Liability
C) Revenue
D) Intangible Asset
Correct answer: B
Rationale: Under IFRS, if redemption is mandatory at a future date, the preference shares
create a contractual obligation to transfer cash and are therefore classified as a financial liability
rather than equity .
Question 10
What is the journal entry to record the declaration of a dividend?
A) Debit: Bank; Credit: Dividend Payable
B) Debit: Retained Earnings; Credit: Dividends Payable
C) Debit: Dividend Expense; Credit: Bank
D) Debit: Dividends Payable; Credit: Retained Earnings
2026
Financial Accounting for Companies
150 Questions and Verified Answers | Graded A+ | Full Assignment Coverage
SECTION A: COMPANIES – SHARE CAPITAL AND LEGAL FRAMEWORK
Questions 1–30
Question 1
What is the primary legislative framework governing companies in South Africa?
A) The Companies Act 61 of 1973
B) The Close Corporations Act 69 of 1984
C) The Companies Act 71 of 2008
D) The Income Tax Act 58 of 1962
Correct answer: C
Rationale: The Companies Act 71 of 2008 is the current legislation governing companies in
South Africa, replacing the 1973 Act. This Act modernized company law and introduced
significant changes such as the removal of par value for shares .
Question 2
Authorised share capital represents:
A) The total number of shares currently issued to shareholders
B) The amount received in excess of the par value
C) The maximum number of shares a company is permitted to issue
D) The portion of retained earnings available for dividends
Correct answer: C
,Rationale: Authorised share capital is the maximum number and value of shares that a
company can issue as stipulated in its Memorandum of Incorporation (MOI). It represents the
ceiling on share issuance without amending the MOI .
Question 3
Which account is credited when a company issues shares at a price above the par value?
A) Share Capital
B) Retained Earnings
C) Share Premium
D) Revaluation Reserve
Correct answer: C
Rationale: The share premium account records the excess amount received over the par value
of the shares. This account is part of equity and represents additional paid-in capital .
Question 4
According to IFRS and the Companies Act 71 of 2008, which statement is true regarding the
"par value" of shares?
A) It is the market value of the share
B) It is the minimum price at which shares can be issued
C) It is a nominal value and has no legal significance under the Companies Act 71 of 2008
D) It determines the dividend amount
Correct answer: C
Rationale: Under the Companies Act 71 of 2008, par value is largely obsolete and has been
removed for many types of shares. Shares can be issued without a par value, reflecting a
modern approach to share capital regulation .
Question 5
"Underwriting" in a share issue refers to:
,A) Selling shares at a discount
B) An agreement to purchase any shares not subscribed for by the public
C) The legal process of transferring shares
D) A type of preference share
Correct answer: B
Rationale: An underwriter (typically an investment bank) guarantees to buy any shortfall in a
share issue, ensuring the company raises the intended capital regardless of public subscription
levels .
Question 6
What is the "pre-emptive right" of an existing shareholder?
A) The right to vote at AGMs
B) The right to receive dividends before creditors
C) The right to maintain their proportional ownership by buying new shares before the public
D) The right to sell shares back to the company
Correct answer: C
Rationale: A pre-emptive right allows existing shareholders to purchase new shares in
proportion to their current holdings before the company offers them to the general public,
protecting them from dilution of ownership .
Question 7
A "subscriber" to the Memorandum of Incorporation (MOI) is:
A) A person who buys shares on the stock exchange
B) A person who signs the MOI and agrees to take at least one share
C) An external auditor
D) A trade creditor
Correct answer: B
Rationale: Subscribers are the founding persons who sign the MOI and agree to take at least
one share each. This is a prerequisite for company incorporation .
, Question 8
Which statement correctly describes the difference between equity and liabilities?
A) Equity holders receive fixed interest; liability holders receive dividends
B) Equity represents ownership, while liabilities represent debt owed to external parties
C) Both are classified the same under IFRS
D) Liabilities are only short-term
Correct answer: B
Rationale: Equity represents the residual interest in the assets of the company after deducting
liabilities. Liabilities are obligations to transfer economic benefit to external parties .
Question 9
If a company issues redeemable preference shares that must be repaid in 5 years, how are they
classified in the financial statements?
A) Equity
B) Financial Liability
C) Revenue
D) Intangible Asset
Correct answer: B
Rationale: Under IFRS, if redemption is mandatory at a future date, the preference shares
create a contractual obligation to transfer cash and are therefore classified as a financial liability
rather than equity .
Question 10
What is the journal entry to record the declaration of a dividend?
A) Debit: Bank; Credit: Dividend Payable
B) Debit: Retained Earnings; Credit: Dividends Payable
C) Debit: Dividend Expense; Credit: Bank
D) Debit: Dividends Payable; Credit: Retained Earnings
