About Company accounts, shares and cash flows in A Level Accounting
Company accounts, shares and cash flows is one of the 7 main topics in our A Level Accounting (Cambridge (CAIE) 9706) question bank, and about 8% of its real questions come from it. Tayyari Karo has 34 real questions on this topic from 2021 to 2026, from Paper 1, Paper 2, Paper 3; 20 are multiple choice and marked instantly, and the rest are structured questions with a model answer. By difficulty: 19 medium, 13 hard, 2 easy.
Work through the questions below, then open the explanation for each one. Redo the ones you missed a few days later.
Try 8 real questions
These are real past-paper questions. Think of your answer first, then open the explanation.
May/June 2026 · Paper 1 · Company accounts, shares and cash flows
What are the advantages that ordinary shareholders have over debenture holders?
1 Debentures may be secured against assets.
2 Dividends are paid before debenture interest.
3 Ordinary shareholders have voting rights at annual general meetings.
- A - 1 and 2
- B - 1 and 3
- C - 2 only
- D - 3 only
Show answer and explanation
Answer: D. D - 3 only
Only voting rights (3) is an advantage of shareholders; debentures may be secured (advantage to debenture holders) and debenture interest is paid before dividends.
May/June 2025 · Paper 1 · Company accounts, shares and cash flows
Which statement is correct in relation to the financial statements of limited companies?
- A - Debentures are presented as part of the total equity.
- B - Dividend paid is shown in the statement of changes in equity.
- C - Proposed dividend reduces the balance of retained earnings.
- D - The gain from revaluation of non-current assets is added to retained earnings.
Show answer and explanation
Answer: B. B - Dividend paid is shown in the statement of changes in equity.
Dividends paid are shown in the statement of changes in equity as a deduction from retained earnings.
October/November 2025 · Paper 1 · Company accounts, shares and cash flows
Company's capital:
Ordinary shares $200 000
Share premium $80 000
Revenue reserves $160 000
Changes: one-for-one bonus issue, then rights issue of 100 000 shares at $1.40. Company wishes to maximise dividends.
What will be the ordinary share capital, share premium and revenue reserves?
- A - $500 000, $40 000, $40 000
- B - $500 000, $80 000, nil
- C - $540 000, nil, $40 000
- D - $540 000, $40 000, $40 000
Show answer and explanation
Answer: A. A - $500 000, $40 000, $40 000
Bonus: 200 000 shares from share premium $80 000 + revenue reserves $120 000. O/S = $400 000. Rights: $100 000 capital + $40 000 premium. Total: O/S $500 000, premium $40 000, reserves $40 000. Answer A.
May/June 2023 · Paper 1 · Company accounts, shares and cash flows
Actions: (1) transfer $50 000 to general reserve, (2) issue 200 000 shares at $2.50, (3) revalue assets from $1 250 000 to $1 500 000, (4) proposed dividends $100 000. What was the increase in total equity?
- A - $450 000
- B - $500 000
- C - $650 000
- D - $750 000
Show answer and explanation
Answer: D. D - $750 000
(1) No change (transfer within equity). (2) 200 000 x $2.50 = $500 000 increase. (3) $250 000 increase. (4) No change (proposed dividend not yet paid). Total increase = $500 000 + $250 000 = $750 000. Answer D.
May/June 2022 · Paper 1 · Company accounts, shares and cash flows
A company made a bonus issue of one ordinary share for every five ordinary shares held. What is the effect on share capital and reserves and net assets?
- A - share capital and reserves increase, net assets increase
- B - share capital and reserves increase, net assets no change
- C - share capital and reserves no change, net assets increase
- D - share capital and reserves no change, net assets no change
Show answer and explanation
Answer: D. D - share capital and reserves no change, net assets no change
A bonus issue transfers amounts from reserves to share capital. Total equity (share capital and reserves) remains unchanged. Net assets are unaffected.
May/June 2021 · Paper 1 · Company accounts, shares and cash flows
A company made a rights issue of ordinary shares at a premium. How will this be treated in the financial statements? 1 as equity in the statement of financial position 2 as a movement in the statement of changes in equity 3 as a non-current liability in the statement of financial position
- A - 1 and 2
- B - 1 only
- C - 2 and 3
- D - 3 only
Show answer and explanation
Answer: A. A - 1 and 2
A rights issue increases equity (1) and is shown as a movement in the statement of changes in equity (2). It is not a liability.
May/June 2025 · Paper 2 · Company accounts, shares and cash flows
(a) Explain two benefits of trading as a limited company rather than as a partnership.
(b) Calculate the amount received from the issue of shares on 30 June 2024.
(c) Calculate the total of the interim dividend paid on 31 March 2024.
(d) Calculate the profit from operations for the year ended 31 December 2024.
(e) Prepare the retained earnings account for the year ended 31 December 2024.
Show model answer
(a) Limited liability protects personal assets; access to more finance; separate legal identity; tax efficiency; professional status.
(b) 200 000 x $2.40 = $480 000.
(c) $0.05 x 600 000 shares = $30 000.
(d) Profit for year $285 000 + taxation $22 000 + debenture interest $9 600 + loan interest $1 250 = $317 850.
(e) Retained earnings: Balance b/d $38 000. Profit for year $285 000. Less: interim dividend $30 000, transfer to general reserve $50 000. Balance c/d $243 000.
The retained earnings account shows all movements in retained profits during the year.
October/November 2023 · Paper 2 · Company accounts, shares and cash flows
(a) Explain difference between capital reserve and revenue reserve.
(b) Prepare statement of changes in equity.
(c) Advise which option to choose (rights issue or debenture).
Show model answer
(a) Capital reserves created from non-trading activities, not distributable. Revenue reserves from profits, distributable.
(b) Balance 1 Jul 2022: capital $30 000, premium $4 500, revaluation $6 000, retained $50 240 = $90 740. Bonus: $5 000 from premium and revaluation. Final dividend ($2 800). Rights: $10 000 capital, $3 000 premium = $13 000. Interim dividend ($1 800). Revaluation downward ($11 000). Profit $43 600. Balance 30 Jun 2023: $45 000, $3 000, -, $83 740 = $131 740.
(c) Option 1: permanent capital, dividends discretionary, but will issue be fully subscribed. Option 2: must repay, interest mandatory, security required, current debenture due next year.
The statement of changes in equity shows all movements in equity components during the year.
