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2 The following trial balance relates to Cavern as at 30 September 2010:
$’000 $’000
Equity shares of 20 cents each (note (i)) 50,000
8% loan note (note (ii)) 30,600
Retained earnings – 30 September 2009 12,100
Other equity reserve 3,000
Revaluation reserve 7,000
Share premium 11,000
Land and buildings at valuation – 30 September 2009:
Land ($7 million) and building ($36 million) (note (iii)) 43,000
Plant and equipment at cost (note (iii)) 67,400
Accumulated depreciation plant and equipment – 30 September 2009 13,400
Available-for-sale investments (note (iv)) 15,800
Inventory at 30 September 2010 19,800
Trade receivables 29,000
Bank 4,600
Deferred tax (note (v)) 4,000
Trade payables 21,700
Revenue 182,500
Cost of sales 128,500
Administrative expenses (note (i)) 25,000
Distribution costs 8,500
Loan note interest paid 2,400
Bank interest 300
Investment income 700
Current tax (note (v)) 900
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340,600 340,600
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The following notes are relevant:
(i) Cavern has accounted for a fully subscribed rights issue of equity shares made on 1 April 2010 of one new
share for every four in issue at 42 cents each. The company paid ordinary dividends of 3 cents per share on
30 November 2009 and 5 cents per share on 31 May 2010. The dividend payments are included in administrative
expenses in the trial balance.I dont understand how to answer this part of the question on shares..
Before the 1 for 4 share issue, there must have been $40,000 worth of shares in issue. The shares have a nominal value of 20 cents each, so there were 200,000 shares in issue until 1 April. The company paid a dividend of 3 cents per share on this 200,000 = $6,000.
Then came the share issue. For every 4 shares held, members were able to buy ( and DID buy ) one more share, so now they have 5 shares instead of their original 4.
Following the issue there were therefore 200,000 / 4 * 5 = 250,000 shares now in issue.
Then the company pays a dividend of 5 cents per share in May = $12,500 dividend.
Therefore a total dividend paid of $18,500
As for the share issue, 50,000 shares were issued at a price of 42 cents. That’s an excess over the nominal value of 22 cents per share. The double entry would therefore be 50,000 * 42 cents ( Dr Cash $21,000 ), 50,000 * 20 cents ( Cr Share capital $10,000 ) and 50,000 * 22 cents ( Cr Share premium $11,000 )
Does that help?
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