1. Profile photo of minhalgulamhussein says

    Dear sir, i am not getting the right answer on question 5 Accounting For Limited Companies. The question is as follow:

    At 30 June 2005 the capital and reserves of Smith, a limited liability company were:
    Share Capital
    Ordinary shares of $1 each 100
    Share Premium account 80

    During the year ended 30 June 2006, the following transactions took place:
    1 September 2005 A bonus issue of one ordinary share for every two held, using
    the share premium account.
    1 January 2006 A fully subscribed rights issue of two ordinary shares for every
    five held at that date, at $1.50 per share.

    What would be the balances on each account be at 30 June 2006?

    Share capital Share premium account
    $m $m
    A 210 110
    B 210 60
    C 240 30
    D 240 80

    Thank you

    • Profile photo of John Moffat says

      There is no need to type out the whole question – I wrote the lecture notes and so I have a copy of the question :-)

      There is a bonus issue of 1/2 x 100M = 50M shares. So there are now 150M shares in issue, and share capital increases by 50M and share premium decreases by 50M.

      There there is the rights issue of 2/5 x 150M = 60Mshares. So share capital increases by 60M and share premium increases by 60M x (1.50 – 1.00) = 30M.

      So the end result is that share capital = 100 + 50 + 60 = 210M
      and share premium = 80 – 50 + 30 = 60M

      (as per the answer printed in the free lecture notes)

  2. avatar says

    Hey John. Can you shed some light on question 4 on the test (Chap 13). I know we wont hit P/L with any dividend payments. I know immediately expense is nil. However, on the B/S why is it NIL? If we declared end of Jun 06 and our period end is Jun 06, surely we have not paid and would still be owing?

    Ps: Would you prefer me to post my questions in “Ask Tutor?”


  3. avatar says

    sir, i have solved it before but i am not able to get correct answer, pls help me, thank you.

    The question is said a limited liability company, has the following trial balance at 31 december 20X9.
    $1 ordinary shares=$1,000,000
    shares premium=$500,000
    retained earnings=$560,000

    Additional information:
    1million new ordinary shares were issued at $1.50 on 1 december 20X9. The proceeds have been left in a suspense account.
    income statement for the year, a statement of changes in equity, statement of financial position?

    • Profile photo of John Moffat says

      Why have you asked the same question twice?
      Also, please ask questions like this in the Ask the Tutor Forum – not as a comment on a lecture.

      The money received from issuing the shares should not have been credited to the suspense account. To correct it, we need to debit the suspense account and credit where it should have gone. The nominal value of the shares (1M) should be credited to the share capital account, and the premium (0.5M) should be credited to the share premium account.
      The Statement of profit or loss will not be affected, but obviously the Statement of changes in equity and the Statement of financial position will show the effect of the issue.

  4. avatar says

    sir, i have solved it before but i am not able to get correct answer. pls help me.Thank you

    the question said a limited company has the following trial balance at 31 december 20X9.
    share premium=$500,000
    $1 ordinary shares=$1,000,000
    retained earnings=$560,000

    1 million new ordinary shares were issued at $1.50 on 1 December 20X9. The proceeds have been left in a suspense account.
    Income statement for the year to 31 december 20X9?
    statement of changes in equity?
    statement of financial position?

  5. Profile photo of Jellal says

    Mr John,
    I’m new here at open tuition and I greatly appreciate your lectures, they’ve been a great help to me, thank you sir. I was finding this topic really hard, but once you explained, I understood it perfectly. Thank you again sir.

  6. avatar says

    Hi John,

    Are you the same tutor on the ask tutor f3 forum? or is it another tutor?

    The questions under this topic seem abit tricky and it always gets tested, doesnt it? please how do we tackle tricky questions with multiple issues and at different values.

    • Profile photo of John Moffat says

      There is only one tutor called John Moffat on this website! :-)

      Every topic always gets tested – not just this one.
      There is no standard approach because there are so many different ways that things can (and will) be asked. The only way is to practice and practice making sure that you have done every question in your Exam/Revision Kit (and under time pressure).

  7. avatar says

    A bit of help with this please….exam tomorrow!!!!

    At 1 January 2009, the capital structure of Q, a limited liability company, was as follows:

    Share capital: (1,000,000 ordinary shares of 50c each) $500,000

    Share premium $300,000

    On 1 April 2009 the company made an issue of 200,000 50c shares at $1.30 each, and on 1 July made a bonus issue of 1 share for every 4 in issue at the time, using the share premium account for this purpose.

    Which of the following correctly states the company’s share capital and share premium accounts at

    Share capital Share Premium
    A $750,000 $230,000
    B $875,000 $285,000
    C $750,000 $310,000
    D $750,000 $610,000

    • Profile photo of John Moffat says

      (it is better to ask this sort of question on the F3 Ask ACCA Tutor forum – I cannot always read every comments below lectures)

      When the first issue of made, the share capital will increase by $100,000 (200,000 x 50c) and the share premium will increase by $160,000 (200,000 x (1.30 – 0.50))

      When the bonus issue is made, they will issue 300,000 shares ((1M at the start + 200,000 issued in April) / 4). Share capital will increase by $150,000 (300,000 x $0.50) and share premium will decrease by the same amount ($150,000)

      • Profile photo of Okema24 says

        Hi Mr Moffat, concerning the question above…..are we to always assume that the bonus issue shares will be issued at par value unless they told us otherwise by actually giving a cost for the new issued shares? & will that total amount be deducted from the share premium a/c?

      • avatar says

        Hi there Mr John

        I need logic behind this, When bonus share is issued, the share capital will increase ( which is i understand ) but why the share premium is decrease? Please help.. Tq n hv a nice day yaa

      • Profile photo of John Moffat says

        Because it is a bonus issue, the shareholders will not have paid in any more money and therefore they cannot be owed any more by the company – the total owing to shareholders (share capital plus the reserves) must stay the same.
        So…..if share capital goes higher (because there are more shares in issue), another reserve must go down. That way the total owing to shareholders does not change.

  8. avatar says

    open assets = 569400
    liability= 412840
    capital introduce= 65 000
    X paid for himself wages of = 800$ per month.

    closing assets- 614,130
    liability 369770

    year end is 31-December 20X8

    calculate profit.

    i know this question seems easy.i have solved it before but for some reason atm i am not able to get correct answer :s

    • Profile photo of John Moffat says

      Increase in net assets = capital introduced + profit – drawings

      Increase in NA’s = (614130 – 369770) – (569400 – 412840) = 87800
      Capital introduced = 65000
      Drawings = 12 x 800 = 9600

      So…..87800 = 65000 + profit – 9600
      Profit = 87800 – 65000 + 9600 = 32400

  9. avatar says

    Is it the called-up Shares paid ONLY that will be accounted for under equity?
    also I recall reading that dividend paid and declared is taken to the statement of Comprehensive income
    and dividend declared only to the statement of Financial Position, is this so?

    • Profile photo of John Moffat says

      Equity is the called up share capital.

      Dividends paid or declared are shown in the Statement of Changes in Equity.
      Dividends are only shown as owing in the Statement of Financial Position if they have been declared but not yet paid.

  10. avatar says

    Dear Sir,
    I would like to get your thoughts on something.
    A private limited liability company was bought over, how will the accounting be done?
    Will the new owner account for it as a new company? revaluation of the assets, etc
    Or will it be accounted for as a going concern?
    Will the company be taxed as an existing company that has been in operation or as a new business?

    Thanks for your response.

    • Profile photo of John Moffat says

      You are just expected to know what appears in the Statement of Change in Equity.
      Especially the fact that dividends do not appear in the Income Statement or the Statement of Financial Position – they only appear in the Statement of Changes in Equity.

  11. avatar says

    Dear Great Provider,
    I am very pleased to find your website and great lectures ofcourse. BUT Here my problem is:
    None of any chapter appeared to me as hard as I suffered this one. I dont know why I cant learn the theory and unfortunately on this topic your video duration is very short but I still agree that your notes are brilliant but as per my problem as I stated :(

    Kindly advice me.

    Many Thanks

    • Profile photo of John Moffat says

      The only real ‘numbers’ bit is dealing with rights issues and bonus issues. Otherwise it is mainly terminology.

      I suggest that you read through the course notes again and watch the lectures again (and read the relevant chapter in any study text you might have).

      I am sure you will still have some problems, so then ask me on here about any specific areas that are causing difficulties and I will try and help you.

      • avatar says

        Dear John,
        I have passed the exam and ofcourse this topic was most dominant in the exam. I saw your other videos like on consolidation etc that regards to limited liability companies and I was done with all the logic almost.

        I pay thanks to you again. This day was lucky for me -30th july :)

        I didn’t read the bpp or kaplna. Because it was not needed any more to swell eyes on reading the things without getting logics. However the interpretation topic was left but I covered it while I was driving car by reading your course notes.

        I am looking forward to use your knowledge for the rest of acca.

        Many Thanks

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