# Accounting for Limited Companies

 View all ACCA F3 / FIA FFA lectures >> This ACCA F3 / FIA FFA lecture is based on OpenTuition course notes, view or download here>>

1. 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:
\$m
Share Capital
Ordinary shares of \$1 each 100

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
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?

\$m \$m
A 210 110
B 210 60
C 240 30
D 240 80

Thank you

• 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)

• Thank you so much for your help in this question. I’ve already understood the solution of the question.

2. 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?”

Cheers
Dan

• says

No problem. Have a safe flight. Thanks!

• says

The final dividend for year to June was not declared until August.
Therefore as at the end of June it was not ‘certain’ and therefore nothing is shown as owing in the Statement of financial position.

3. 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
retained earnings=\$560,000
suspense=\$1,500,000

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

• 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. 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.
\$1 ordinary shares=\$1,000,000
retained earnings=\$560,000
suspense=\$1,500,000

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

5. 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.

• says

Sir i did my F3 exams today and in section B the question 1 it was mainly based on shares and limited companies and i was really glad because i perfectly understood what you have taught me here. In the end i passed with 77%. thank you sir, your help is greatly appreciated:)

• says

That is great news – many congratulations

6. 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.
Thanks.

• 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. says

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

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

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

A \$750,000 \$230,000
B \$875,000 \$285,000
C \$750,000 \$310,000
D \$750,000 \$610,000

• 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)

• says

Thanks John

• says

• 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?

• says

Bonus shares can only ever be issued at nominal/par value. The amount is credited to share capital, and debited to share premium.

• 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

• 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. 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

• 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. 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?

• 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. 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?

• says

It depends on the laws (and tax rules) of the country you are in.
(and it cannot be asked at all in Paper F3)

11. says

sir will the “statement of changes in equity” a substantial part of the exam caz that is very hard to learn????? plz my exam is 4 days from now…plz reply

• 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.

• says

thank you very much sir…you have just cut my 50 % tension..thanks for the quick reply …..you are the greatest teacher in the world !!!

12. 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

Many Thanks

• 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.

• says

Hats off to you. I will come back if there is anything to ask you.

• 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

• says

Congratulations on passing the exam

(And congratulations on not having a car accident – reading the notes while driving??? )

• says

The directors recommend what the dividend should be (at this stage it is proposed). The shareholders vote as to whether or not they agree with the proposal.

13. says

Thank you very much Johnmoffat. I fully understand now that u have explained. God’s Blessings to you.