ExpertEasy2 marksMultiple Choice
ACCA · Question 15 · Capital and the financing of companies
Section A
Which of the following statements correctly describes a key difference between a fixed charge and a floating charge?
Section A
Which of the following statements correctly describes a key difference between a fixed charge and a floating charge?
Answer options:
A.
A fixed charge must be registered at Companies House, but a floating charge does not require registration.
B.
A fixed charge attaches to a specific asset, whereas a floating charge hovers over a shifting class of assets.
C.
A floating charge ranks higher in priority than a fixed charge in the event of liquidation.
D.
A company can freely dispose of an asset subject to a fixed charge without the lender's permission.
How to approach this question
Compare the characteristics of fixed and floating charges, focusing on the company's ability to deal with the assets in the ordinary course of business.
Full Answer
B.A fixed charge attaches to a specific asset, whereas a floating charge hovers over a shifting class of assets.✓ Correct
A fixed charge attaches immediately to a specific, identifiable asset (e.g., land, machinery), preventing the company from disposing of it without the lender's consent. A floating charge hovers over a class of assets (e.g., inventory) that changes in the ordinary course of business, allowing the company to deal with them freely until the charge 'crystallizes'.
Common mistakes
Misunderstanding the priority of charges or the registration requirements.
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