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ACCA F3 Accounting for Limited companies, the statement of Profit and Loss
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Dear sir,
I have no idea about question 5, even after checking the answer from lecture note. (I feel it is quite different from example 2.)
Can you explain question 2 in detail?
Thanks:(
I am puzzled that you want question 2 explained in detail when you say you have no idea about question 5! They are both the same principles. Have you watched the lecture in full?
Is there a lecture for preparing basic financial statements?
Yes – the lecture that goes with chapter 3 of the lecture notes.
(But you should work through the lectures in order – they form a complete course covering everything you need to be able to pass Paper F3 well)
Hi John,
Great lecture!!
The question of 6Mar2014 above refers. (Ive copied the question below in case)
I was wondering about the following values of A, B & C.
SCapital Ordinary shares $ SPremium $
O.Balance 1 Jan 1,000,000 $500,000 A $300,000
First issue 1 April 200,000 $100,000 200,000 $160,000
Total shares issued 1,200,000
Bonus issue 300,000 $150,000 B ($150,000)
1,500,000 $750,000 C $ 310,000
QUESTION:
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 $610,000
Tables don’t really work here so well, do they ? 😉
………………………………SCapital Ordinary shares…..$………………..SPremium…..$
O.Balance 1 Jan …….1,000,000 ………………………..$500,000……A ……………….$300,000
First issue 1 April ………200,000 ………………………..$100,000……200,000……….$160,000
Total shares issued …1,200,000………………………………………………………………………………
Bonus issue ……………..300,000 ………………………..$150,000……B ……………….($150,000)
……………………………..1,500,000 ………………………..$750,000…..C……………….. $ 310,000
In future please ask questions like this in the Ask the Tutor Forum – not as a comment on a lecture.
Your answer is correct. It is C (as I also wrote before in my reply to the first time this was asked)
Hi John
My question asks to replace the letters A, B & C.
I am sorry but I do not understand you.
The correct answer is C, so I do not know what you mean by replacing the letters! There is only ever one correct answer to multiple choice questions.
QUESTION
The question is testing the ability to read a table. That table reads the following:
1. Opening balance: Capital share is 1,000,000 Ordinary shares $500,000. If Premium shares are A, valued at $300,000. What is the value of A?
2. First issue: Capital share is 200,000 Ordinary shares $100,000. Premium share is 200,000 valued at $300.000
3. Bonus issue: Capital share is 300,000 Ordinary shares $150,000. If Premium shares are B valued at $150,000. What is the value of B?
4. End Total: Capital share is now 1,500,000 Ordinary shares $750,000. If Premium shares are C valued at $310,000. What is the value of C?
So the question clearly asks, replace A, B & C in the table. I cannot put it any clearer.
Ahhh – now I understand! My previous reply was the answer to your second question.
With regard to your first question – replacing A, B and C – I don’t know where on earth you found this question, but that column is never needed! Judging by the one figure that is given (200,000) it can only be stating the number of shares again. So A must be 1,000,000; B must be 300,000; and C must be 1,500,000.
Which again makes this extra column completely unnecessary and I cannot believe it would ever be asked for in the real exam. In the real exam questions on this topic appear in the way you have typed it under the heading ‘QUESTION’ and you have to choose the correct one of the four answers. How you do your workings for it is irrelevant because nobody looks at the workings – a computer simply marks whatever letter you have chosen as right or wrong.
Dear teacher
income from investment belongs to which statement?
The Statement of profit or loss
what kind of income may be ? Is it different from increase in capital?
It’s called investment income and appears on the Statement of profit or loss. It will therefore increase the profit, and profit increases the retained earnings which increases the equity.
It will help you to watch all of the lectures, in order.
Thank you for the good lecture, your clear explanation makes life more easier each day. Concerning question 5 answered above, I understand quite well how you did it however I am a bit confused when I read the lecture note on Bonus issue of share – the last paragraph that says ‘The total amount owing to shareholders in the Statement of Financial Position will not change, and the issue of bonus shares is generally used as a way of ‘tidying up’ the Statement of Financial Position.’ From the Q5, on 1 Sept, after the bonus issue 1 for 2, there was an increase of 50M shares, and to my understanding, this change from 100M to 150M. Kindly explain what you mean by the statement in the lecture note.
Thank you for your time on this.
But the total owing to shareholders on the Statement is the share capital plus all the reserves.
With a bonus issue, the share capital increases but the share premium reduces, and so the total does not change.
Oh, my mistake. I agree with you. Thank you for pointing it out. It’s much appreciated.
And thank you for the prompt response
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
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
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.
Thank you Sir.. Please what is actually loan notes and who can is the original issuer ?
Kind regards.
Chris.
Hi, the lecturer is very short and only two things has been explained i.e how to calculate share capital and share premium. In the course notes there are lot of things like preference share, ordinary shares, dividends, reserves, bonus issue of shares etc. In lecture non of thier double entries is taught. So in the exam what the students will be asked in this topic?
Some things you have to read yourself!! There is no point in us simply reading to you.
With regard to double entries – F3 is not a double entry exam (computers can do the double entries!) – there is very little testing of debits and credits in F3.
When you have watched all of the lectures and read all of the lecture notes you will have more than enough to pass the exam well (provided, as we say throughout, that you have practiced all of the questions in your Revision Kit). If you have problems with any of the questions in your revision kit (or anything else)then you should ask in the Ask the Tutor forum and we will answer and help you within 24 hours.
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
I will answer you here, but it will be tomorrow because I am about to board a flight.
No problem. Have a safe flight. Thanks!
The first two dividends had already been paid.
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.
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
suspense=$1,500,000
Additional information:
1million new ordinary shares were issued at $1.50 on 1 december 20X9. The proceeds have been left in a suspense account.
REQUIRED:
income statement for the year, a statement of changes in equity, statement of financial position?
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.
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
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?
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.
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:)
That is great news – many congratulations 🙂
2_ accural and prepaid
I am sorry, but I really do not understand what you are asking.
Let me apologise …i accidentally wrote this comment. Sorry for trouble u..????
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.
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).
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
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
(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 ($150,000)
Thanks John
is the answer is c????
Yes
Hi Mr Moffat, concerning the question above…..are we to always assume that the bonus issue shares will be issued at par value unless they told us otherwise by actually giving a cost for the new issued shares? & will that total amount be deducted from the share premium a/c?
Bonus shares can only ever be issued at nominal/par value. The amount is credited to share capital, and debited to share premium.
Hi there Mr John
I need logic behind this, When bonus share is issued, the share capital will increase ( which is i understand ) but why the share premium is decrease? Please help.. Tq n hv a nice day yaa
Because it is a bonus issue, the shareholders will not have paid in any more money and therefore they cannot be owed any more by the company – the total owing to shareholders (share capital plus the reserves) must stay the same.
So…..if share capital goes higher (because there are more shares in issue), another reserve must go down. That way the total owing to shareholders does not change.
open assets = 569400
liability= 412840
capital introduce= 65 000
X paid for himself wages of = 800$ 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
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
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?
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.
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.
I am sorry but I can’t help you.
It depends on the laws (and tax rules) of the country you are in.
(and it cannot be asked at all in Paper F3)
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
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.
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 !!!
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
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.
Hats off to you. 🙂 I will come back if there is anything to ask you.
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
Congratulations on passing the exam 🙂
(And congratulations on not having a car accident – reading the notes while driving??? 🙂 )
can any one tell me wht is mean by dividends praposed..?
*proposed
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.
Thank you very much Johnmoffat. I fully understand now that u have explained. God’s Blessings to you.