Loan capital

Each in turn:

1) This is clearly incorrect. If there are no ‘distributable profits’ then the preference shareholders will probably discover that the directors fail to propose a preference dividend. Even though a dividend is not paid, for it to be ranked as a liability, it must as a minimum be declared … but then not paid. In addition, although most preference shares are classed / issued as ‘cumulative preference shares’ it is possible to issue preference shares that are not ‘cumulative’. The expression ‘cumulative’ tells us that, where in any particular year the preference dividend is not paid (even though it has been declared), the unpaid dividend from one year will roll up into subsequent years when hopefully there will be sufficient distributable profits to finance the accumulated dividends.

2) According to legislation, dividends may only be financed by ‘accumulated realised profits less accumulated realised losses’. Thus it can clearly be seen that accumulated losses from earlier years must be taken into account when calculating the distributability of this year’s profits.

3) It is the one of jobs of shareholders in general meetings to approve the dividend proposed by the directors. It’s part of the ‘ordinary business’ of an AGM. It IS possible (although I’ve never heard of it happening!) that the attending and voting members at an AGM may approve a dividend LOWER than that proposed by the directors. But the dividend approved cannot be greater than the dividend proposed by the board.

4) the depreciation charged on the increased amount of the revalued asset is treated as a realised profit when computing ‘distributable profits’.

So, in summary, the correct answer should be option 3.

Well done

Your allegory of the human body operation was gross!

Yes. But we’re looking specifically at the rights of the frustrated, unpaid debenture holders.

Shareholders and directors probably don’t want to go down that route!

There is a limit on the liability OF THE LIMITED PARTNERS! So all partners are liable but some are more liable than others (with apologies to George Orwell and his epic novel Animal Farm)

OK?

Can’t that lead to danger “as 1 partner take control, they begin to change the rules, taking more for themselves and forcing other animals/partner to work harder.

Dissolve the partnership! If the general partner says ‘I’m taking 95% from now on and you lot can work 16 hours per day 7 days a week’, apart from telling the general partner where to go, you’d dissolve the partnership.

OK?

3 of the options, I had to pick 2. Mock said 1 & 2 are correct. I picked 1 & 3. Is it a mistake in the mock?

1) The wall is only 5/6 of the contracted height so the court will likely direct that Athena should pay only 5/6 of the contract price

2) Even though Panagiotis has failed to perform in accordance with the contract, he has nevertheless rendered substantial performance so should be entitled to substantially all the money agreed in the contract

3) Because the cost of demolition and reconstruction will be disproportionate when compared with the loss of pleasure resulting from the continuing visibility of the rubbish tip, the court will not grant an order in favour of Athena

Thanks for all your help!

I gathered – there was a clue in the first option. “The wall is only 5/6…..”

This is worthy of a new thread. It doesn’t fit into a thread titled ‘loan capital’. 🙁

OK!

Thank you for your explanation! I think I understand it almost completely…

Is there an error in the mock? The phrase “entitled substantially all the money…” makes it false as far as I understand…

No, but bear it in mind for your next post.

Is 5/6 of the contract price not ‘substantially all’? If not, what amount would qualify as ‘substantially all’ in your mind?

No problem

Which other exams have you already passed?

The general advice from ACCA is to take the exams in their sequence ie take the next one that is listed after the law paper – so performance management and then taxation.

Hope that helps.

And don’t forget to let me know your law result!