ACCA Advanced Financial Management (AFM) Practice Exam

What does it mean when shares are described as issued and outstanding?

1. They are held by investors

2. They are held in treasury

3. They have been repurchased by the company

4. They are reserved for employee stock options

The correct answer is: They are held by investors

When shares are described as issued and outstanding, it refers to shares that have been allocated to shareholders and are currently held by them. This means that these shares have been issued by the company and are actively held in the hands of investors, contributing to the ownership structure of the company. Issued shares represent the total number of shares that have ever been sold to investors, while outstanding shares are a subset of issued shares that are not held in treasury (repurchased by the company) and are available to the market. This terminology helps stakeholders understand the distribution of ownership and the amount of shares that can influence voting rights, dividends, and other financial metrics. In contrast, the other options pertain to shares that are either repurchased by the company, held in treasury by the company, or designated for specific purposes like employee stock options, which do not directly contribute to the active ownership of the company at that time. Thus, the definition of issued and outstanding shares directly aligns with the context of ownership held by investors.