ExpertMedium2 marksMultiple Choice
ACCA · Question 19 · Corporate and Business Law
When a company issues shares at a premium, what must it do with the premium amount?
When a company issues shares at a premium, what must it do with the premium amount?
Answer options:
A.
Distribute it immediately as a dividend to existing shareholders.
B.
Transfer it to a share premium account, which has restricted uses.
C.
Use it to pay off the company's unsecured creditors.
D.
Credit it to the profit and loss account as trading revenue.
How to approach this question
Recall the statutory rules regarding the share premium account.
Full Answer
B.Transfer it to a share premium account, which has restricted uses.✓ Correct
Under the Companies Act 2006, any amount paid for shares above their nominal value must be transferred to a share premium account. This account is strictly regulated and can only be used for specific purposes, such as issuing fully paid bonus shares.
Common mistakes
Thinking share premium can be used to pay dividends.
Practice the full ACCA LW — Corporate and Business Law Practice Exam 1
60 questions · hints · full answers · grading
More questions from this exam
Q01Which of the following courts is bound by the decisions of the Court of Appeal (Civil Division)?EasyQ02In the context of statutory interpretation, what is the 'mischief rule'?MediumQ03Which of the following statements regarding the Human Rights Act 1998 is correct?MediumQ04A shop displays a laptop in its window with a price tag of £50. The actual price is £500. A custo...EasyQ05Which of the following represents a valid exception to the rule that past consideration is no con...Medium