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FA Chapter 13 Questions Accounting for Limited Companies
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Hi Sir,
I’m also a little bit confused by Question 4.
In chapter 13, example 2, for the Y/E 31 Dec 17, the final and interim dividends paid during the financial year reduce the retained earnings in the SOFP because they were paid out during that financial year.
Just so I’m clear, what’s the difference with Question 4? Why do the final and interim dividends not affect the SOFP in the same way as in example 2?
Would appreciate any help on this.
Thanks,
Kellie
They do affect the retained earnings, but that does not mean that they are disclosed separately in the SOFP.
Okay, so it’s in the wording of the question, if a question asks for the effect of the dividends in the SOFP then it’s correct to say that retained earnings are reduced in the SOFP, but if a question asks for dividend amounts that should be disclosed in the SOFP, then it’s nil, because they shouldn’t be disclosed in SOFP on their own?
Correct 馃檪
Dear Sir,
I’m a little confused about question 4. The answer is said that “Dividents only appear in the SOFP if they have been approved before the end of the year but have not yet been paid”. But in the lectures, it is said that “Dividents are not recorded until they are actually paid”. Could you please explain this. Thank you for your lecture.
If they have been approved then they are recorded and appear in the SOFP as a liability. However this is unlikely in the exam.
100 %
OMG, this is the first time my score get 5/5. This result really made my day!
hello sir i scored 60 ..last question i drew a table like you taught on example 4 of the same chapter where number of share was 500,000 with share capital at 125,000 and share premium at 100,000.
why is the share capital(ordinary shares) of 100,000,000 being the one to calculate share premium total?i dont know if my question is clear but i ned help understanding the answer on the last question.
The bonus issue comes first in date order.
The bonus issue is 50M shares and therefore share capital increases by $50M and share premium decreases by $50M. There are now 150M shares in issue.
Then comes the right issue with is 2/5 x 150M = 60M shares. Therefore share capital now increases by $60M and share premium increases by $30M.
100%! Interesting lecture and perfectly understood. Thank you so much sir.
Thank you for your comment 馃檪
Dear Sir,
Can have the answers for chapter 13 in Financial Accounting notes.
I work through all of the examples, and explain the answers, in my free lectures.
It is pointless to use the notes without watching the lectures because they are only lecture notes and it is in the lectures that I explain and expand on the notes. If you are not watching the lectures for any reason then you must buy a Study Text from one of the ACCA approved publishers and study from there.
Hi! Thank you so much for your free lectures! You’re honestly such a life saver 馃檪 For question 4, shouldnt $40,000 be part of the dividend that appears since it’s in June 2006?
No.
No dividends will appear in the SOPL (only in the SOCE).
Hello sir. Is gain from revaluation of non current asset same as revaluation surplus? I considered it as revaluation surplus but question three states it is a revaluation on non current asset.
The two phrases mean the same 馃檪
If revaluation gain on revaluation of non current assets are same as revaluation surplus, why it appears on statement of changes in equity. I though revaluation surplus should have to be adjusted separately in the other comprehensive income statement. Can you please clear my doubt?
I repeat, ‘gain’ and ‘surplus’ are the same thing. Whichever you choose to call it, it appears on the Statement of Comprehensive Income (below the SOPL) and also appear in the SOCE, as increasing the Revaluation Reserve.
I suggest you watch the free lectures on limited companies.
Dear Sir,
I have some confuse about question 3. Why the income from investment do not affect the company statement of change in the equity?
As far as i understand, the income from investment might contribute to the net profit of the year, hence it should be counted as a factor that changes equity.
It does contribute to the profit for the year, but it does not appear separately on the SOCE. The question does not ask what factors change equity – it asks what appears on the SOCE.
Please watch the free lectures on this. The lectures are a complete free course for Paper F3 and cover everything needed to be able to pass the exam well.
Concerning question 4
Dividend paid is only recorded when it is paid and only in statement of changes in equity…
Whatever Dividend that is yet to be paid (but proposed dividend will not be recorded as Liability) but not paid yet will go to SOFP as Current liability. That is why only 120,000 will go to SOFP as current liability
Sir Am I correct?
Kindly sir correct me i cannot understand this question …
As you should have read in the pop up answer to this question, nothing will appear in the SOFP. Dividends only appear as a current liability if they have been approved by the shareholders (i.e. voted on) before the year end but have not been paid.
The dividend of 120,000 was not declared until after the year end (the year end is in June and it was declared in August) and therefore it is not relevant for this years financial statements.
Hi, for question 4, wouldn’t the dividend paid (100,000 + 40,000) reduce the retained earnings in the SOFP? I notice this question is similar to Example 2 in the notes but the nature of the answer is very different. Can you please explain the subtle difference? Thank you.
It will affect the retained earnings, but it is not disclosed separately in the SOFP.
But why we do not write dividends which paid in 2005 to SOFP?
If a dividend has been paid, then why on earth would you want to show it in the SOFP. We only show assets and liabilities in the SOFP!!
Hi,
The reason why 120000 wasnt included in SoFP was because it was declared in August 2006? Am i right?
Yes, you are correct (In future please give the number of the question that you are asking about)
thanks tutor for your great free work. in Q2 I worked out share capital 1/2*125000=62500+125000=187500+1/5*187500=37500 then 187500+37500=225000. share premium i could not work out. but i confused where 0.25 ,0.75 and 25c came from.
thanks for the web site and your great help.
The question says that the shares have a nominal/value of 25c. Therefore when the new shares are issued at 1.00, 35c goes to share capital and the other 75c goes to share premium.
Have you watched the free lecture on rights issues and bonus issues?
thanks for your respond.I watched the lecture , but in the lecture there are no 25c ,35c,75c are these cents of $1 divided? or may be i misunderstood. thank you
I have explained in my previous answer 馃檪
Hi Sir, while thanking you for this great website I would like to ask maybe you can explain to me question 2 in detail please especially I did not understood why we deduct the 37,500 from the Share premium? why is there a decrease? Thanks a lot
A bonus issue is an issue for free shares to existing shareholders. The entry is always to credit share capital (because there are more shares in issue) and debit share premium (because there has been no cash received and so the total owing to shareholders does not change).
This is explained in detail in my free lectures (the lectures are a complete free course for Paper F3 and cover everything needed to be able to pass the exam well).
Thanks a lot for your help
You are very welcome 馃檪
Hi Sir, concerning Question 2. the double entry for bonus issued is Dr. Share Premium and Cr. share capital and for rights issued it is Dr Cash, Cr share capital and Cr share premium Account. so i worked the question using the accounting entries and i got $50,000 for my share premium account because the opening balance of $100,000 is on the debit side and also the bonus issued of $ 37,500 and on the credit side it is rights issued of $ 187500. But for the answer of that question you have $250,000 because you Dr. rights issued of $187500 and Cr. bonus of $37500. so my question is why did u Dr, Rights issued and Credit Bonus when the accounting entries stated to Dr. Bonus issued and Cr. Rights issued for the share premium account???
First, the balance on the share premium account is always a credit balance (not a debit balance).
Secondly, we do not debit rights issued and credit bonus – there are not such accounts! We debit cash, with the cash received, credit share capital with the nominal value of the shares issued, and credit share premium with the excess of the cash over the nominal value.
Thirdly, it is better not to think in terms of debits and credits anyway – Paper F3 is not a debit and credit exam. Computers do the debits and credits these days – accountants tell the computer what to do (and that is what the exam is mostly testing) 馃檪
I really do suggest that you watch my free lectures before attempting the tests. The lectures are a complete free course for Paper F3 and cover everything needed to be able to pass the exam well.
Dear Sir,
In this question the March 2006 dividends were paid before the end of the year so it must have been approved. I do not understand why $40000 wont show up on the Statement of financial position. I do get that the $120000 wasn’t approved or paid before the end of the year but the interim dividend was.
Your clarification will be much appreciated.
Thanks
But a dividend would only appear in the SOFP if it had been approved but had not been paid (and so was a liability). Since it has been paid, there is nothing owing.
Dear sir,
For what concerns Question no 3, Chapter 13, in the lecture notes I have found the following information that seems contrary to the correct answer indicated for this question.
“These dividends are not recorded until they are actually paid. Therefore proposed dividends
will not appear in the Statement of Financial Position. In addition, dividends will be
subtracted from the retained earnings only in the year that they are actually paid.”
Thank you very much for your help.
But question 3 does not mention proposed dividends – only dividends paid.