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  • This topic has 14 replies, 2 voices, and was last updated 8 years ago by MikeLittle.
Viewing 15 posts - 1 through 15 (of 15 total)
  • Author
    Posts
  • December 3, 2016 at 8:34 pm #353516
    faze
    Participant
    • Topics: 15
    • Replies: 40
    • ☆☆

    Hi Mike,

    I am really confused with this question, specifically the agency transaction working and the dividend working.

    Also is it possible you can explain to me where the cash coupon paid (2500) came from in the loan note working and also why the property cost is depreciated as opposed to the accumulated property cost.

    I hope i don’t need to type up the question as it is very long!

    Thanks

    December 3, 2016 at 8:43 pm #353522
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23316
    • ☆☆☆☆☆

    This had better be a past exam question!

    Give me the exam reference please, hopefully!

    Even the financial year end of the entity would possibly help

    December 3, 2016 at 8:47 pm #353524
    faze
    Participant
    • Topics: 15
    • Replies: 40
    • ☆☆

    Hi Mike, yes it is, I believe it is from June 2014. The year end is 31 March 20X4.Hope this helps!

    Thanks!

    December 3, 2016 at 9:03 pm #353532
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23316
    • ☆☆☆☆☆

    1st thing tomorrow – it’s past my bedtime now

    Ok, the agency transaction

    We sold for $20 some goods that weren’t ours and we earned a commission income of $2 on that sale

    So we owe the principal $18 and we have now paid $15 of that

    The double entry that we HAVE effected is:

    Dr Cash $20
    Cr Revenue $20

    Dr Cost of sales $15
    Cr Cash $15

    The double entry that we SHOULD HAVE effected is:

    Dr Cash $20
    Cr Principal $18
    Cr Commission Income $2

    Dr Principal $15
    Cr Cash $15

    Leaving us with a liability to the principal of $3

    To get from what we HAVE done to what we SHOULD HAVE done (2 ways to do this – either cancel the bad entries and then put through the good ones, or)

    Dr Revenue $20 (takes it out of Revenue)
    Cr Commission Income $2 (records the commission income!)
    Cr Cost of sales $15 (taking it out from where it has been entered)
    Cr Liabilities $3 (the amount still owed to the Principal)

    Property cost?

    It’s a 20 year life – straight line depreciation based on cost

    “20-year leased property at cost”

    What’s 5% of 50?

    December 3, 2016 at 10:41 pm #353557
    faze
    Participant
    • Topics: 15
    • Replies: 40
    • ☆☆

    No problem, thanks Mike 🙂

    December 4, 2016 at 8:13 am #353605
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23316
    • ☆☆☆☆☆

    You’re welcome (answer is above your last post)

    December 4, 2016 at 12:12 pm #353690
    faze
    Participant
    • Topics: 15
    • Replies: 40
    • ☆☆

    Hi Mike,

    Thanks for this, could you just explain how you got the ‘what we should have done part”? I just don’t understand why we debit revenue? I assume it is just to reverse the credit entry of $20?

    Also, I’m sorry but could you take me through the ”dividend paid” working?

    Thanks

    December 4, 2016 at 12:56 pm #353696
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23316
    • ☆☆☆☆☆

    “The double entry that we SHOULD HAVE effected is:

    Dr Cash $20
    Cr Principal $18
    Cr Commission Income $2

    Dr Principal $15
    Cr Cash $15”

    There’s no “debit revenue” in “What we should have done”

    Yes, I’m sorry too – it means I’m going to have to call up the question again!

    🙁

    There are %46,000 worth of Equity shares in issue AFTER the 2 for 5 rights issue

    That means that before the rights issue, there must have been $40,000 worth of 25 cent equity shares in issue because a 2 for 5 issue added on to $40,000 worth means an additional 40/5 x 2 = $16,000 worth additional giving us the $56,000 in issue per the question

    Number of shares in issue before the rights issue = 40,000 x 4 = 160,000
    Number of shares in issue after the rights issue = 56,000 x 4 = 224,000

    Dividend per share before the rights issue was 4 cents = $6,400
    and dividend per share after the rights issue was 2 cents = $4,480

    Giving total dividends for the year of $10,880 and loan interest of $13,380 – $10,880 = $2,500

    OK?

    December 4, 2016 at 1:27 pm #353707
    faze
    Participant
    • Topics: 15
    • Replies: 40
    • ☆☆

    Sorry Mike, this may sound like a stupid question but how do you get 46,000 with the rights issue?

    Also, why de we multiply the number of shares by 4?

    December 4, 2016 at 1:53 pm #353712
    faze
    Participant
    • Topics: 15
    • Replies: 40
    • ☆☆

    Also, I am not sure how you got 40,000 from.

    December 4, 2016 at 4:23 pm #353751
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23316
    • ☆☆☆☆☆

    “There are %46,000 worth of Equity shares …”

    Double misprint, sorry

    That should be $56,000

    “Also, why de we multiply the number of shares by 4?”

    The shares have a nominal value of 25 cents so, for every $ there are 4 shares

    “Also, I am not sure how you got 40,000 from”

    $56,000 after the 2 for 5 rights

    Therefore before the rights there must have been $56,000 / 7 x 5 = $40,000 worth of shares with a 25 cent nominal vale per share = 160,000 shares

    Better?

    December 4, 2016 at 4:30 pm #353758
    faze
    Participant
    • Topics: 15
    • Replies: 40
    • ☆☆

    A bit, but why do we divide by 7 and multiply by 5?

    December 4, 2016 at 4:50 pm #353767
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23316
    • ☆☆☆☆☆

    If there’s a 2 for 5 rights issue, that means that for every 5 shares that you used to own, you now own 7

    Say you started with 5 shares and there was a 2 for 5 bonus / rights issue

    How many shares do you now own?

    You’ve just received an additional 2 shares so now you have 7

    OK. Now you go to your grandma and say “Granny, I have 7 shares in OpenTuition because they’ve just had a 2 for 5 rights issue. Can you tell me how many shares I had before that rights issue?”

    And your grandma looks totally bewildered so, like Dynamo the magician you say “Gran, to find the number of shares that I owned before the rights issue, all I have to do is simply divide by the 7 shares that I have now and multiply by the 5 that I held before.

    Now, Gran, can you tell me the answer to this? If I now hold 763 shares in OpenTuition, how many did I own before the rights issue?” and Gran, quick as a flash, says “545! You can’t faze me you young whipper-snapper”

    “Blimey, Gran! How did you do that so quickly?”

    And Gran replies “I simply divided by 7 and multiplied by 5. I can also tell you how many additional shares you received under the rights issue! If I divide by 7 and multiply by 2, that’s how many new shares you received”

    Don’t you just hate it when your Gran shows you that she’s a smart ar….ithmetically cute cookie!

    December 4, 2016 at 5:02 pm #353770
    faze
    Participant
    • Topics: 15
    • Replies: 40
    • ☆☆

    Haha thanks Mike, that makes perfect sense now 🙂

    December 4, 2016 at 5:35 pm #353774
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23316
    • ☆☆☆☆☆

    You’re welcome

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