CHAPTERS 5.8–5.

13

LIMITED COMPANIES

Question 1

(a) The authorised share capital is $500 000

(b) The issued share capital is $400 000
(c) The called-up share capital on 1 July 2018 is:
Preference shares $100 000
Ordinary shares $150 000
Total $250 000
(d) The paid-up share capital on 31 July 2018 is:
Preference shares $100 000
Ordinary shares $130 000
Total $230 000

Question 2

(a) The authorised share capital is: $1 200 000

(b) The issued share capital is $590 000 (Nimesh $500 000; Rajinder $50 000;
Serena $40 000)
(c) The called-up share capital on 1 April 2018 is:
Preference shares $200 000 (Nimesh)
Ordinary shares $234 000 (Nimesh $180 000; Rajinder $30 000
Serena $24 000)
Total $434 000
(d) The paid-up share capital on 31 July 2018 is:
Preference shares $200 000 (Nimesh)
Ordinary shares $196 000 (Nimesh $150 000; Rajinder $22 000;
Serena $24 000)
Total $396 000

Question 3

Part 1
Preference share dividend: 6% × $80 000 = $4 800
Ordinary share dividend: 12% × $250 000 = $30 000

Part 2
Ordinary share dividend: 850 000 × $0.10 = $85 000

Question 4

Part 1
Preference share dividend: 8% × $120 000 = $9 600
Ordinary share dividend: 15% × $750 000 = $112 500

Part 2
Ordinary share dividend: 740 000 × $0.08 = $59 200
Question 5

HAYFORD LTD
Income statement for the year ended 31 August 2018
$ $
Revenue 640 000
Less: Opening inventory 33 800
Purchases 250 000
283 800
less closing inventory (44 900)
Cost of sales (238 900)
Gross profit 401 100
Less expenses
Business expenses ($78 400 − $1 800 prepaid) 76 600
Directors’ salaries 52 900
Depreciation of non-current assets
[25% × nbv ($460 000 − $80 000)] 95 000
(224 500)
Operating profit 176 600
Less finance charges (18 000)
Profit for year 158 600

Note: finance charges are as follows

debenture interest (10% × $140 000) = $14 000
preference share dividend paid (5% × $80 000) = $4 000
Question 6

SAHERA LTD
Income statement for the year ended 31 May 2018
$ $
Revenue 395 000
Less: Opening inventory 17 100
Purchases 182 800
199 900
less closing inventory (14 200)
Cost of sales (185 700)
Gross profit 209 300
Less expenses
Business expenses ($34 700 + $1 800 accrued) 36 500
Directors’ salaries 32 400
Increase in provision for doubtful debts 600
Depreciation of non-current assets
(20% × $85 000) 17 000
(86 500)
Operating profit 122 800
Less finance charges (11 200)
Profit for year 111 600

Note: finance charges are as follows:

Debenture interest (8% × $50 000) = $4 000
Preference share dividend paid (6% × $120 000) = $7 200
Question 7

Avalon Ltd
Statement of changes in equity
for the year ended 30 September 2018
Retained General Total
Earnings Reserve
$ $ $
Balances 1 October 2013 143 000 60 000 203 000
Add profit for year 165 000 165 000
Less ordinary share dividends paid (120 000) (120 000)
Transfer to general reserve (25 000) 25 000 --
Balances 30 September 2014 163 000 85 000 248 000

Question 8

Zedtrex Ltd
Statement of changes in equity for
the year ended 31 August 2018
Retained General Total
Earnings Reserve
$ $ $
Balances 1 September 2017 372 000 130 000 502 000
Add profit for year 666 000 666 000
Less ordinary share dividends paid (600 000) (600 000)
Transfer to general reserve (25 000) 25 000 --
Balances 31 August 2018 413 000 155 000 568 000

Workings: ordinary share dividend paid 1 500 000 shares × $0.40 = $600 000
Question 9

WENFOD LTD
Statement of financial position at 31 December 2018
Accumulated Net book
Cost Depreciation value
$ $ $
NON-CURRENT ASSETS 960 000 162 000 798 000

CURRENT ASSETS
Inventories 17 100
Trade receivables 19 500
Other receivables 700
Cash and cash equivalents 38 800
76 100
874 100
EQUITY
SHARES AND RESERVES
Authorised share capital
800 000 ordinary shares of $1 each 800 000
40 000 8% preference shares of $1 each 40 000
Issued share capital
600 000 ordinary shares of $1 each fully paid 600 000
40 000 preference shares of $1 each 40 000
General reserve 72 400
Retained earnings 98 800
Total equity 811 200
NON-CURRENT LIABILITIES
7% Debentures 2022 50 000
CURRENT LIABILITIES
Trade payables 12 400
Other payables 500
12 900
874 100
Question 10

EMPRIX LTD
Statement of financial position at 31 July 2018
Accumulated Net book
Cost Depreciation value
$ $ $
NON-CURRENT ASSETS 765 000 183 200 581 800

CURRENT ASSETS
Inventories 34 800
Trade receivables (net) 7 700
Other receivables 400
42 900
624 700
EQUITY
SHARES AND RESERVES
Authorised share capital
1 400 000 ordinary shares of 50c each 700 000
140 000 7% preference shares of $1 each 140 000
Issued share capital
700 000 ordinary shares of 50c each 350 000
140 000 7% preference shares of $1 each 140 000
General reserve 41 000
Retained earnings 43 600
Total equity 574 600

NON-CURRENT LIABILITIES
9% Debentures 2024 30 000

CURRENT LIABILITIES
Trade payables 11 700
Cash and cash equivalents 8 400
20 100
624 700
Question 11

JIMPLEX LTD
Income statement for the year ended 31 December 2018
$ $
Revenue 704 000
Less: Opening inventory 25 000
Purchases 384 000
409 000
less closing inventory (32 000)
Cost of sales (377 000)
Gross profit 327 000
Less: expenses
Administration and selling expenses ($68 000 − $4 000 prepaid) 64 000
Depreciation of non-current assets (20% × $900 000) 180 000
(244 000)
Operating profit 83 000
Finance costs (12 000)
Profit for year 71 000

Statement of changes in equity for the year ended 31 December 2018

Share Retained Total
capital earnings
$ $ $
Retained earnings at 1 January 2012 500 000 115 000 615 000
Add: profit for year 71 000 71 000
Less: dividends paid (50 000) (50 000)
Retained earnings at 31 December 2012 500 000 136 000 636 000
 Statement of financial position at 31 December 2018
$ $
NON-CURRENT ASSETS at net book value 720 000
CURRENT ASSETS
Inventory 32 000
Trade receivables 13 000
Other receivables 4 000
Cash and cash equivalents 15 000
64 000
784 000
EQUITY
SHARES AND RESERVES
Authorised share capital
800 000 ordinary shares of $1 each 800 000
Issued share capital
500 000 ordinary shares of $1 each 500 000
Retained earnings 136 000
Total equity 636 000

NON-CURRENT LIABILITIES
10% Debentures 120 000

CURRENT LIABILITIES
Trade payables 28 000
784 000

Question 12

ORTOGON LTD
Income statement for the year ended 30 June 2018
$000 $000
Revenue 1 167
Cost of sales (543)
Gross profit 624
Less: expenses
Administration and selling expenses (148 + 9 accrued) 157
Depreciation of non-current assets (10% × 1960) 196
(353)
Profits from operations 271
Finance costs (debenture interest 3 and preference dividend 24) (27)
Profit for year 244
 Statement of changes in equity for the year ended 30 June 2018
Ordinary Preference Retained General Total
shares shares Earnings Reserve
$000 $000 $000 $000 $000
Balances at 1 July 2017 1000 400 206 44 1650
Add: profit for year 244 244
Less: ordinary share dividends paid (150) (150)
Less: transfer to general reserve (25) 25 --
Balances at 30 June 2018 1000 400 275 69 1 744

Statement of financial position at 30 June 2018

$000 $000 $000
NON-CURRENT ASSETS at net book value 1 764
CURRENT ASSETS
Inventory 31
Trade receivables 37
68
1 832
EQUITY
SHARES AND EQUITY
Authorised and issued share capital
1m ordinary shares of $1 each 1 000
400 000 6% preference shares of $1 each 400
General reserve 69
Retained earnings 275
Total equity 1 744

NON-CURRENT LIABILITIES
10% Debentures 30

CURRENT LIABILITIES
Trade payables 31
Other payables 9
Cash and cash equivalents 18
58
1 832

EXAM-STYLE QUESTIONS

Q Ans Q Ans Q Ans Q Ans Q Ans

13 B 14 A 15 B 16 A 17 D

Question 18

(a) Authorised share capital: $2 000 000 (i.e. ordinary shares $1 800 000 +
preference shares $200 000)
(b) Issued share capital: $1 450 000 (i.e. ordinary shares $1 350 000 +
preference shares $100 000)
(c) Paid up share capital is the part of the called up share capital of a company
for which payment has been made.
(d) Preference share dividend: 7% × $100 000 = $7 000
(e) Profit for the year ended 31 December 2018:
$
Profit from operations 427 000
Less Finance charges (Debenture interest $4 800 + Preference (11 800)
share dividend paid $7 000)
415 200

(f) Ordinary share dividend: 1 350 000 × $0.20 = $270 000

(g)
Treble Clef Ltd
Statement of changes in equity
for the year ended 31 December 2018
Ordinary Preference Retained General Total
shares shares Earnings Reserve
$000 $000 $ $ $
Balances 1 January 2018
1 350 000 100 000 88 000 130 000 1 668 000
Add profit for year
415 200 415 200
Less ordinary share dividends paid
Transfer to general reserve
(270 000) (270 000)
Balances 30 September 2018
(47 000) 47 000 --
1 350 000 100 000 186 200 177 000 1 813 200

(h) Debentures are described as 6% because this is the rate of interest which is
payable annually; 2028 is the date by which the debenture loans will be
repaid.
(i)

Treble Clef Ltd

Statement of financial position at 31 December 2014
Accumulated Net book
Cost Depreciation value
$ $ $
NON-CURRENT ASSETS 2 000 000 240 000 1 760 000

CURRENT ASSETS
Inventories 57 100
Trade receivables 59 000
Cash and cash equivalents 49 600
165 700
1 925 700
EQUITY
SHARES AND RESERVES
Authorised share capital
1 800 000 ordinary shares of $1 each 1 800 000
200 000 7% preference shares of $1 each 200 000
Issued share capital
1 350 000 ordinary shares of $1 each fully paid 1 350 000
100 000 preference shares of $1 each 100 000
General reserve ($130 000 + $47 000) 177 000
Retained earnings 186 200
Total equity 1 813 200

NON-CURRENT LIABILITIES
6% Debentures 2024 80 000

CURRENT LIABILITIES
Trade payables 32 500
1 925 700