7.1 Share capital and reserves

• What is the definition of share capital?

  Money raised by shares
• Reserves are accumulated profits retained by a company that are distributed as dividends.

  False
• Other types of reserves include capital reserves and revenue reserves
• What do ordinary shares entitle the holder to?

  Voting rights and dividends
• The par value of a share is also known as its nominal value
• Match the type of share capital with its definition:

  Authorized Share Capital ↔️ Maximum amount permitted

  Issued Share Capital ↔️ Amount issued to shareholders

  Paid-up Share Capital ↔️ Amount paid by shareholders
• Ordinary shares entitle the holder to voting rights and a share of company profits
• Arrange the following types of share capital in descending order based on their maximum possible value:

  1️⃣ Authorized Share Capital

  2️⃣ Issued Share Capital

  3️⃣ Paid-up Share Capital
• The dividend payment for ordinary shares varies with company performance
• What type of dividend payment do preference shares provide?

  Fixed rate
• What is the purpose of revenue reserves?

  Reinvestment or dividends
• What are the two main types of reserves?

  Revenue and capital
• Match the share capital concept with its description:

  Authorized Share Capital ↔️ Maximum amount a company can issue

  Issued Share Capital ↔️ Amount actually issued to shareholders

  Paid-up Share Capital ↔️ Amount paid for by shareholders
• The authorized share capital is the maximum amount of share capital a company is permitted to issue, as stated in its Memorandum of Association.
• What is paid-up share capital?

  Issued share capital paid
• Ordinary shareholders have voting rights and a share of profits through dividends.

  True
• Preference shareholders usually lack voting rights.

  True
• Capital reserves are funds for specific purposes, such as asset revaluation, and are not available for dividends.
• What is a common use of retained earnings?

  Debt repayment
• What is an example of a capital reserve?

  Share premium
• What are the two main types of shares?

  Ordinary and preference
• Order the concepts of authorized, issued, and paid-up share capital according to their scope:

  1️⃣ Authorized Share Capital

  2️⃣ Issued Share Capital

  3️⃣ Paid-up Share Capital
• Ordinary shares offer ownership control, while preference shares provide dividend stability.
• Selling shares above par value increases capital reserves.


  True
• What is an example of retained earnings being used for capital expenditures?

  Purchasing new equipment
• Common uses of retained earnings include capital expenditures and research and development
• What is the purpose of operational reserves funded by retained earnings?

  Maintain financial stability
• Match the type of reserve with its definition:

  Capital Reserves ↔️ Profits for non-operating activities

  Revenue Reserves ↔️ Profits from normal business operations
• Retained earnings are classified as revenue reserves.
• Understanding reserves is crucial for assessing a company's long-term planning.


  True
• The market value of a share is its trading price on the stock exchange.
• Order the concepts of share capital from largest to smallest:

  1️⃣ Authorized Share Capital

  2️⃣ Issued Share Capital

  3️⃣ Paid-up Share Capital
• Capital reserves are primarily used for non-operating purposes such as funding capital projects.


  True
• Authorized share capital is the maximum amount of shares a company is permitted to issue, as stated in the Memorandum of Association.
• Paid-up share capital refers to the portion of issued shares that investors have fully paid for.


  True
• There are two main types of shares: ordinary and preference
• What are retained earnings classified as?

  Revenue reserves
• Steps involved in the process of raising share capital

  1️⃣ Define the authorized share capital

  2️⃣ Issue shares to investors

  3️⃣ Collect payments for issued shares

  4️⃣ Record paid-up share capital
• Preference shares typically carry voting rights.

  False
• Authorized share capital is the same as issued share capital.

  False