The correct answer is A.
EXPLANATION
Agency issue is when agents, in this case directors, have different interest than the principal, which in this case is shareholders. So if agents are putting their interest before principal’s interest it is known as agency issues.

The correct answer is D.
EXPLANATION
If the share price is low then either of the two can happen, shareholder will either sell their share to a predator company at a price higher than the current market price or the shareholders will remove the directors from the board or will not re-appoint the director. So either way it imposes a discipline on weak directors.

The correct answer is B.
EXPLANATION
Option A is incorrect because it is possible for directors to run the company into insolvency which will reduce the payout to debenture-holders. So even debenture-holders are not protected from weak directors.
Option B is correct because it is the risky behavior of directors that will run the company into ruin.
Option C is incorrect because agency relationship arises when someone else is supposed to make decisions on behalf of you for your interests, and directors are agents for both shareholders and debenture-holders.
Option D is incorrect because debenture-holders do not bear the same agency risk as shareholders.

The correct answer is A.
EXPLANATION
In case of default of payment of interest payment or loan re-payment as it is the directors who will be held responsible as they are responsible for managing the day-to-day affairs of the company.
Company’s external auditors are responsible for auditing the company and to tell the shareholders that financial statements represent true and fair view of the company.
In case of default company’s shareholders will at max loose the money invested by them in the company they will not be personally humiliated.
Company’s treasurer will also not be responsible for the loan.
Although not there in the syllabus, but for this question it would be helpful to know that in case a company defaults on the payment of interest or loan re-payment for 1 year then the directors will be disqualified from being re-appointed in this company for 5 years.

The correct answer is C.
EXPLANATION
Option A is incorrect because directors have access to all the relevant knowledge to make sound managerial decision, if they are not able to one then it is their  personal shortcoming.
Option B is incorrect because if shareholder cannot process all the information presented to them then it is not due to information asymmetry but due to their personal limited bandwidth.
Option C is correct because it is not possible to disclose all the information that are available to directors to shareholders because it can leak strategies to the competitors. Also, it can contain sensitive managerial, financial or customer information.
Option D is incorrect because some shareholders being more informed then others is not called information asymmetry.

The correct answer is B.

Explanation:

In case of theory maximization of shareholder wealth, the major point is that some shareholders will want immediate dividend income and some will want capital gain in the future. So different shareholders can have different expectations and wants. But the one thing that would make everyone happy is increase in their wealth which happens when the share price increases.

The correct answer is C.

Explanation:

In a company there will be if not more thousands of stakeholders, so it is not possible to satisfy all of them. So, option A is incorrect.
Option B is incorrect because as per contractual theory, some stakeholders will have informal contract with the company.
Option C is correct because this is what contractual theory says.
Option D is incorrect because stakeholders will not co-operate with each other as everyone has different viewpoints and objectives.

The correct answer is B.

Explanation:
Option A is incorrect because it is to directors’ interest to increase the profit because some of the directors’ bonus and remuneration are linked with the profit of the company.
Option B is correct because profit is a short-term measure of success, what matters to the shareholders is how consistently the firm can maintain their earning.
Option C is incorrect because whether profits would lead to pressure of dividends or not will depend on the shareholders’ objectives.
Option D is incorrect because shareholders do benefit from profit, higher profit might lead to an increase in share price.

The correct answer is B.

Explanation:

Option A is incorrect because it is not relevant.
Option B is correct because directors awarding themselves excessive salaries mean lower profit left for the shareholders.
Option C is incorrect because it is not relevant.
Option D is incorrect because it is not relevant.

The correct answer is D.

Explanation:
Option A is incorrect because maximization of shareholder wealth does not align directors’ interest with all shareholders. The theory says that those who like this objective will stay and others will sell their share and a new shareholder who have the same objective will buy the share.
Option B is incorrect because agency problems are still going to be there even with this theory being followed.
Option C is incorrect because this objective does not maximize profit.
Option D is correct because it does provide a reasonable measure of evaluating the performance of directors. If the director is able to maximize shareholders’ wealth then they are good otherwise they are not.

The correct answer is B.

Explanation:
If a company is expected to make high future dividend payments then the share price of the company will be driven up by all those investors looking for immediate income.

The correct answer is C.

Explanation:
In agent-business relationship, agents are the ones making decisions on the behalf of principal. So principal feel that they cannot trust the agents.
Option D is a correct statement but that does not describe agency problem.

The correct answer is D.

Explanation:

Quoted company would spend more than necessary on external audit because a qualified audit opinion for a quoted company can cause a lot of problem for the directors of the company.
Option A, B and C are completely non-sensical.

The correct answer is A.

Explanation:
Option B is incorrect because not every investor wants the company to maximize the return some just want the company to provide steady source of income.
Option C is incorrect because not every investor wants the company to minimize the risk, some want the company to invest in risky projects and make high return.
Option D is incorrect because every shareholder will give their own objective in the feedback and it is not feasible and practical to achieve everything that shareholder wants.

The correct answer is B.

Explanation:
Appropriate for non-executive director is deciding on terms and conditions and remuneration of executive directors. Since it would be expected that they are going to be unbiased.

The correct answer is A.

Explanation:
Option B is incorrect because logically speaking director of no profit making company will place social responsibility of shareholder wealth maximization objective.
Option C is incorrect because logically speaking in general no director will place social responsibility over their own interests.
Option D is absolutely incorrect.

The correct answer is D

Explanation:

Option A is incorrect because agency problem can be reduced through transparency and accounting.
Option B is incorrect because agency problem do exist in real life.
Option C is incorrect because if shareholders are concerned then directors also need to be concerned if they want to stay as directors of the company.
Option D is correct.

The correct answer is C

Explanation:
Non-executive directors are usually hired to set the terms and conditions and remuneration of executive directors.
If Option A and B was correct about any director and it was known to all then that director would not be hired in the first place.
Option D is incorrect because some non-executive directors charge as much as and sometimes even more than executive directors.

The correct answer is C.

Explanation:
Had there been no agency issues between directors and shareholders, and shareholders would have 100% trust over the directors then theoretically speaking there would not have been a need for external auditing.
In a strawberry world where everyone can trust everyone on what they say there would not be a need for an external auditor.

The correct answer is B.

Explanation:

Option A is incorrect because members of LLP are exposed to risk of loosing the money they have invested in the organization.
Option B is correct because members of LLP are exposed to risk of loosing the money they have invested in the organization.
Option C is incorrect because members of LLP are not personally liable for the debts of the business.
Joint and severally liable basically means that if one of the partner in partnership firm takes out loan in excess to the amount he was authorized to, then every partner of the firm will be liable for the loan. But this is not the case in a LLP firm and in such case only the member who acted beyond his authorization will be personally liable.

The correct answer is D.

Explanation:
It is not necessary for a public company to be large it can be small as well. Also, it is not necessary for every public company to be listed on stock exchange. And, it is also not necessary for a public to have an established track record, there are many public companies who have defaulted in the filing of annual returns and financial statements.

The correct answer is D.

Explanation:
Option A is incorrect because there is no monetary limit to how much the members is liable to in a LLP as this is not a company limited by guarantee.
Option B is incorrect because there cannot be no such agreement in a LLP.
Option C is incorrect because members can suffer due to the acts or omission of other members as the business can get closed down or the members can be publicly humiliated and harassed.
Option D is correct because limited liability means that legally they are not liable to more than what they have invested in the business. Their personal assets cannot be used to pay off the creditors.

The correct answer is C.

Explanation:
Most of the times the premium on the share is collected at the time of the first call itself, so the remaining amount that shareholder has not paid to the company yet is the face value of the share and they are liable to pay that.

The correct answer is C.

Explanation:
Option A is incorrect because shareholders can be personally liable if they are the directors of the company and the corporate veil is lifted, this is a scenario in which the veil that was there between the company and its directors are lifted.
Option B is incorrect because it is not necessary for the shareholders of a small company to be the directors of the company, small company in India means a private company which has a paid-up-share capital of less than 4 crore rupees and turnover of less than 40 crore rupees.
Option C is correct because directors of the company can be shareholders.
Option D is incorrect because it is not necessary for a sole trader or partnership to make the owners of the company as managers, they can hire an outsider to be a manager of the business.

The correct answer is D

Explanation:

Option A is incorrect because it is not necessary for a PLC to have a stock market quotation.

Option B is incorrect because having a wide shareholding increases the risk of conflicting interest.

Option C is incorrect because there are many private companies out there which are bigger than a PLC.

Option D is correct because there are many private companies out there who are more credible than the PLC.

The correct answer is D.

Explanation:

In a partnership firm, partners are jointly and severally liable for the liabilities of the companies. So even though Martin’s share in profit/loss is 15% he would be, including all the other partners, 100% liable for the debts of the business.

The correct answer is B.

Explanation:

Option A is incorrect because this is not taxable.

Option B is correct because this is a capital gain so it attracts capital gains tax.

Option C is incorrect because this is not taxable, as sale of rare sports car which was used by the taxpayer was for his personal use.

Option D is incorrect because gain made from the sale of residential house in which taxpayer was living does not attract tax.

The correct answer is C.

Explanation:

Since the taxpayer has already paid £10,000 in Australia they would not have pay any more tax in UK, as they can offset £8,000 they are supposed to pay to UK government against what they have already paid.
They cannot offset more than what they are supposed to pay.
They also cannot reclaim what they have already paid as tax to some other country.
Option D is incorrect because the taxpayer will have to declare to the UK tax authorities the total income they have earned, even the income they have earned in Australia. Plus they will also have to disclose the tax they have already paid.

The correct answer is D.

Explanation:

The only purpose of TDS is to simplify the tax collection.

The correct answer is C.

Explanation:
This is done because the current market price of the asset might not be the price at which it would be sold if and when it would be sold by the taxpayer, so it is not fair to tax the taxpayer as the current market price of the asset.
Option D is incorrect because it is totally fair to tax capital gains.

The correct answer is B.

Explanation:
Depreciation is not allowed to be treated as expense because there are countless ways of calculating depreciation, and if allowed then many companies will exploit this to show lower profits and hence reduce their tax liability. So this allows a lot of discretion to the
Option A is incorrect because depreciation is a real expense.

The correct answer is C.

Explanation:

Option A is incorrect because subsidiary company will be taxed on profit earned in host country.

Option B is incorrect because parent company will be required to declare the dividends earned by them in their country.

Option C is correct.

Option D is incorrect because the dividend income is received in the home country so the tax will also be paid in the home country, the profit was earned in the host country and the tax has to be duly paid there.

The correct answer is C.
Explanation:

TDS is not deducted on Eurobonds, rest all the other options are true.

The correct answer is D.

Explanation:
Interest rate charged is inversely related to the risk the instrument has on it. Unsecured bank loan carries the highest risk on it so the rate charged on it is also high.

The correct answer is B.

Explanation:

Option A is incorrect because cost of subordinated debt would be higher than that of the secure debt

Option B is correct because subordinated debt holders would be paid later than the other debt-holders.

Option C is incorrect because subordinated debt do not have less formalities than the secure debt.

Option D is incorrect because issue of subordinated debt will not be viewed as a sign of confidence by the market, issue of secured debt would be viewed as a sign of confidence. It will show that company is so sure that they will repay the debt that they are willing to mortgage prime asset(s) of their company.

The correct answer is B.

Explanation:

Option A is incorrect because a higher interest rate is charged on subordinated debt.

Option B is correct because priority of repayment will change if further senior debt is issued so senior debt holders do very so often place a restriction on further issue of senior debt.

Option C is incorrect because both subordinated debt and senior debt offer tax advantage. So that cannot be the reason for why a company would prefer to issue subordinated debt rather than senior debt.

Option D is incorrect because shareholders would still be paid at the very last so they are indifferent to what is issued by the company.

The correct answer is C.

Explanation:

Option A is incorrect because the conversion is not compulsory.

Option B is incorrect because it will not continue as loan stock indefinitely, it will get repaid eventually.

Option C is correct because this is what happens in case of convertible securities.

Option D is incorrect because such conversion terms are not mentioned in the question.

The correct answer is B.

Explanation:
Eurobonds has its origin from Europe that is why it has Euro as its prefix. Now it refers to all those bonds which are issued offshore, outside of legal or tax jurisdictions.

The correct answer is A.
EXPLANATION

Directors do not have the discretion to suspend the dividends of the preference shareholders. If equity shareholders want they can refuse to get the dividends paid for anyone, including the preference shareholders; but after a certain period even the preference shareholders would get the voting rights.
All the others are disadvantages of issuing preference shares.

The correct answer is C.

Explanation:
Par value means the face value of the shares, and this value is only there for the book-keeping purpose. In real life, shares are often issued at a premium. And sometimes they even trade at a price which is higher or lower than the par value.

The correct answer is C.

Explanation:
Debentures are issued at a certain interest rate they are not changed with the change in the interest rate prevailing in the economy. So the monetary value of the cashflows will not change but the real value of cashflows will fall and hence value of debentures will decrease.

The correct answer is B.

Explanation:

Security on a normal debenture and a zero-coupon debenture would be same.
Debentures would be issued at a significant lower value than its nominal or redeemable value.
No one would purchase a zero-coupon debenture issued at a premium.
This is no valid reason to buy a zero-coupon debenture.

The correct answer is A.

Explanation:

Explanation:

Option A is correct because equity shares are a relatively expensive source of finance, this is because they carry the highest risk so a return higher than other securities are expected to be paid here.

Option B is incorrect because cost of equity shares are expensive.

Option C is incorrect because there is a link between returns offered to the shareholders and the cost of equity.

Option D is incorrect because there is no mention of word relatively here.

The correct answer is B.

Explanation:
Option A is incorrect because it is irrelevant.
Option B is correct because cost of debt of a convertible security is lower than that of a normal debt.
Issuing convertible security has nothing to do with gearing ratio. So option C and D.

The correct answer is D

Explanation:

Nominal value of debt is received at the time of maturity, it does not make sense to receive nominal value of debt at the time of purchase or annually or at the time of coupon payment.

The correct answer is C

Explanation:

Debt will always be repaid before shares.
Mortgage loans will be paid before the subordinated debt, because subordinated debt are junior debt.
Preference shareholders will be paid before the equity share holders.

The correct answer is C

Explanation:

So for every one share 0.2 shares are issued.

Theoretical ex-rights price $=\frac{2+0.2 \times 1.6}{1.2}=1.93$

The correct answer is D.

Explanation:
An introduction will grant a quotation for a company even though the company is not making any new shares or existing shares available to the market.
All other requires the company to make issue of shares.

The correct answer is C

Explanation:

So for every one share 0.2 shares are issued.

Theoretical ex-rights price $=\frac{5+0.2 \times 3}{1.2}=4.67$

The correct answer is B.

Explanation:
The existing shareholders have the right to buy the shares further issued by the company, and the shareholders can either buy those right shares or sell the rights to someone else. If they forget to sell those rights then those rights would be sold on behalf of them. So the forgetful shareholders was no worse off.

The correct answer is C.

Explanation:
Shares can only be issued at the nominal price or at a price higher than that (nominal price + premium). So if shares are currently trading at a price lower than the nominal value then the only option for the directors is to issue the shares at nominal value, but no one would buy such shares because they are already available at a price cheaper than that.

The correct answer is A

Explanation:

So for every one share 0.2 shares are issued.

Theoretical ex-rights price $=\frac{4+0.2 \times 3.5}{1.2}=3.92$

But, the company is also incurring issue cost so the theoretical ex-rights price would be lower than $3.92. And, the only lower theoretical ex-right price lower than $3.92 in the options is Option A.

The correct answer is A

Explanation:

Shares are issued at £2.50 which is £1.50 more than the nominal value  so this is premium, so the share capital that would appear in the balance sheet is £10000 and the value that would appear in share premium is £15000.

The correct answer is C

Explanation:
Eligible bill of exchange is a bill is defined as a bill the payment for which is guaranteed by a bank.

The correct answer is D

Explanation:
Working capital requirement of a company is going to be fluctuating in nature, at the time of high demand they would need to maintain a higher working capital and at the time of lower demand they would need to have a lower working capital. This fluctuation in demand happens on a frequent basis so the overdraft facility is the most appropriate financial instrument to meet them.

The correct answer is B.

Explanation:
In a finance lease the risk of ownership is transferred to the lessee, so all the expenses relating to the asset is also incurred by the lessee.
Bank do not provide finance lease owner of the asset does.
Option D is incorrect because in finance lease the term of lease if close to or is the useful life of the asset.

The correct answer is A

Explanation:
In case of an cash purchase the buyer will get cash discount which they miss out on if a credit purchase is made, so the cost of trade credit is included in the purchase price of the product.
Option B is incorrect because often the cost of trade credit is not transparent and is not known.

The correct answer is A

Explanation:

Option A is correct because overdraft facility do have more flexible terms than a fixed-term loan.
Option B is incorrect because overdraft do not have an explicit agreement of when it should be repaid.
Option C is incorrect because bank can call overdraft facility as and when they want.
Option D is incorrect because overdraft is generally secured against floating charge.

The correct answer is C

Explanation:

Options are generally purchased to protect oneself from ‘worst possible’ outcome.
Option A is incorrect  because option holder do not gain from any change in future exchange rate, they will either gain when the future exchange rate increases or when they decreases depending on what position they are holding.
Option B is incorrect because option does not eliminate all future uncertainty.

The correct answer is C.

Explanation:
Option A is incorrect because price of options can be equally volatile as that of a future.
Option B is incorrect because counterparty of a financial future is stock exchange so credit risk is completely eliminated
Option C is correct because buying an option means trader would still make profit from the upside, here the upside is if Euro strengthens. This is because trader would want Australian dollars so they would exchange Australian dollars for Euros, so if now Euros strengthens then would receive higher Australian dollars, so this is an upside.
Option D is incorrect because trader is selling Euros for Australian dollars, so if Euros weakens then they would be able to purchase lesser Australian dollars; which is a downside risk.

The correct answer is D.

Explanation:
If US Dollar strengthens against American dollars then the company will make a loss and so will only receive a partial refund of its margin, and since this is a future contract there is clearing house in between the two parties.

The correct answer is D.

Explanation:
The price at which the shares are trading, that is £1.20, is the share price at the time when the options were issued.
The current share price of the shares are £1.30.
The premium of the options are £0.10.
Strike price of the options are £1.40.

The correct answer is D.

Explanation:

Margin of the future contract is there to protect the counterparties from the credit risk.
The major problem with the forward contracts are that the other party might refuse to oblige the contract if the situation moves against them. So to avoid that from happening future contract has margin in it.

The correct answer is C.

Explanation:
Financial institution from whom the company has taken loan from does not car about whether the other party with which the company in question was in swap agreement has defaulted or not, so nothing would change on there part.
But for the company in question would still be obliged to pay floating rate debt.

The correct answer is C.

Explanation:
The major aim of bringing accounting standards was to reduce variations in the way the accounts are prepared. Before the accounting standards came into business the comparison of accounting standards was not possible because different companies used to use different accounting concepts and approximations.

The correct answer is B.

Explanation:
Since the company is a going concern it does not make sense to revalue the assets at the end of every year.
If the company would not have been a going concern then it would have made sense to check the realizable value of the assets.
And by ‘true value’ of the assets the question refers to ‘realizable value’ of the asset.

The correct answer is A

Explanation:
As the comment suggests ’emphasis of matter’ literally means that auditor wants to emphasis on an important matter. If the accounts was not prepared accurately or represent the true and fair view of the company then the auditor would have given ‘disclaimer of opinion’ or ‘qualified opinion’.

The correct answer is B.

Explanation:
The consequence of money measurement concept is that some of events which are not measurable in money, like retiring of senior employee of a company would not be recorded in the financial statements.

The correct answer is C.

Explanation:
As per cost concept the value of the assets should be recorded as per the previous year value of the asset less the depreciation charged on the assets. If a gain in market value is recognized then that would not necessarily be equal to previous year value of the asset less the depreciation charged on the assets, therefore the cost concept is breached.

The correct answer is D.

Explanation:
In such situation the company should follow an approach which would ensure that integrity of financial statements continue to be there.
Going with Option A, B or C would not necessarily reveal the true and fair view of the financial statements.