Q: Suggest possible reasons why the directors of Cam limited transferred $80 000 to the

general reserves.

Retains cash in the business/maintains liquidity/to retain working capital

Improves working capital
Funds retained for major expenditure such as purchasing non-current assets/expansion of
business.
Profits ‘ploughed back’ for business to grow / Used to fund the general growth of the business and
its assets
Used for future dividends/maintains dividends in times of loss/when profits are low
For use in emergencies/contingencies/if company has financial difficulties

Q: State the differences between ordinary shares and debentures.

Ordinary shares Debentures

Shareholders are the owners of the Debenture holders make a non-current loan of
business capital to the business/are creditors
Receive dividend Receive interest/interest is fixed

Dividend is not guaranteed/dividend Interest on the loan must be paid

is variable (not fixed)
Dividend is an appropriation of profit Interest recorded in income statement as an
expense
In liquidation paid after debentures In liquidation paid before ordinary shares

Have voting rights Do not have voting rights

Can attend AGM Cannot attend AGM

Q: State the differences between preference shares and debentures.

Preference shares Debentures

Paid dividend Paid interest

Part of company equity/share capital Loans to the company/loan capital

Generally no set repayment date/ Set redeemable date

may be redeemable

May be cumulative dividend Interest must be paid even if losses are

incurred