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Hi again. I was reviewing chapter 13 in your website. Then I tried to understand my previous question which you answered but still I m not sure how to calculate it.
That’s my problemWe have this INFO in trial balance
Ordinary shares 50c. 8,000
10% irredeemable preference shares $1 9,000
10% loan notes 8,000
Share premium 3,000
Preference dividend paid 900
Interim ordinary dividend paid 1,600We want to manage Equity in SOFP
You answered
The balance on the share premium account of $8,000 is the proceeds of issue of 4,000 shares of $0.50 each.
Therefore $2,000 should be transferred to share capital and the other $6,000 transferred to share premium.
Now I’m trying to understand it
Ordinary shares 50c. Credit 8000
Means number of shares were
Nominal value = 0.5
$8000÷0.5=16000In T account in share capital account
We have CR $8000And now they added
?A final ordinary dividend of 10c per share is to be proposed.
Proposed share won’t write down any where in statement
So I don’t do anything?
And T account for premium share
Stay the same
Cr $3000But we have money in suspense account which represents the proceeds from the issue of 4000 ordinary share
I’m confused. I can’t get it.
I need to understand it. I can’t leave it.
Please could you guide me more?
That’s my understanding :
I know
company Nominal value was 50c and we have cr $8000 in share capital a/c8000÷0.5=16000
Cash: Dr $8000
Share capital : Cr $800010% × 16000=1600
1600×0.5($1-0.5)=800 irredeemable preference shares
Cash: Dr. $8000 + $1600
Share capital : $8000 + $800
Share premium :$3000 (we had in T balance)+ $800?please could you guide me more? Thank you
In your original question, there was a balance of $8,000 on the suspense account that was from the issue of shares. So the entry that will have made would have been Dr Cash Cr Suspense account.
It related to the issue of 4,000 shares. Since the shares have a nominal value of $0.50, then 4,000 x 0.50 = $2,000 should go to the share capital account (making the total share capital 8,000 + 2,000 = $10,000).
The extra $6,000 from the issue of shares (8,000 – 2000) is the share premium. This should go to the share premium account, making the total on share premium 9,000 (3,000 + 6,000).
So the correcting entry is:
Dr Suspense account 8,000
Cr Share capital account 2,000
Cr Share premium account 6,000The balances on the preference shares account is not affected (nor is the balance on the loan notes account, but obviously this is not equity anyway).
You are correct that the proposed dividend is not relevant (because it has not been paid).
I have forgotten where you said you found this question, but is there not an answer in the same book?
HI. Thank you for your full detailed answer. This question is in the Kaplan F3. Chapter 17. Test 1.
There is an answer under statement of changes in equity (page 319), but I was so confused to understand that it’s an adjustment from the Trial balane and actually there is some part of the answer in the question(in the Trial balance ). I thought I have to recalculate and write down again.The answer in the book says
?the issue of 400 shares for $8000 means they were issued at $2 each. If ….
My apology , I became blind and I was only thinking of $2 ??how, from where .???..
However, now I understood it
Thank you for your help again.
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