CSEC: MAY 2012, QUESTION #5

No. 5(b): Preparation of journal entries to record the issuance of the remaining ordinary shares and preference shares and the redemption of some of the debentures:
Workings:

1. The remaining balance of ordinary shares = Authorized ordinary share capital – Issued ordinary share capital, i.e. 200,000 – 165,000 = 35,000 shares. These shares were issued at a premium as their par value is $1 and they were sold for $1.50.

 

• The par value of the ordinary shares equals $35,000 i.e. (35,000 x $1.00).
• The share premium on the ordinary shares equals $17,500 i.e. (35,000 x $0.50).

 
    2. The remaining balance of preference shares = Authorized preference share capital – Issued preference share           capital, i.e. 100,000 – 83,000 = 17,000 shares. There is no premium on the preference shares as they were
         issued at their par value of $1.

Below are the journal entries to record the transactions of Aries Limited that took place on 1st April, 2011.

No. 5(c): Preparation of the Appropriation Account for Aries Limited for the year ended 31st May, 2011:
Workings:

1. The interest due on the remaining debentures is calculated as follows: 10% ($41,000 - $21,000) = 10% of $20,000 = $2,000.
2. Adjust of Profit and Loss Account for Debenture Interest Expenses = $90,000 - $2,000 = $88,000.
3. The dividends on the preference shares is calculated as follows: 8% ($83,000 + $17,000) = 8% of $100,000 = $8,000.
4. The dividends on the ordinary shares is calculated as follows: 12% ($165,000 + $35,000) = 10% of $200,000 = $24,000.

Below is the Appropriation Account of Aries Limited for the year ended  31st May, 2011.

Note: Debenture interest is an expense and therefore not an appropriation of profit, hence it doesn’t appear as a line item in the Appropriation Account.

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