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Retained earnings,loan(preference shares)

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › Retained earnings,loan(preference shares)

  • This topic has 4 replies, 2 voices, and was last updated 4 years ago by kennigara.
Viewing 5 posts - 1 through 5 (of 5 total)
  • Author
    Posts
  • April 19, 2021 at 3:58 pm #618229
    kennigara
    Participant
    • Topics: 193
    • Replies: 250
    • ☆☆☆

    Hi Dear Tutor, I have slightly very exceptional questions.

    Big Boss Ltd now issues 25,000 6% 2014 preference shares for 25c each. Big Boss
    Ltd also decides to pay a dividend of 5c per share to ordinary shareholders.

    (a) Show the journal entry to record the share issue.
    (b) Calculate how much dividend will be payable at the year end and the journal
    entries.

    Dr Bank $6,250
    Cr Redeemable preference shares $6,250

    Dividend payable:
    Ordinary s/h = 200,000 shares x $0.05
    = $10,000

    Redeemable preference s/h = $6,250 x 6%
    = $375

    Journal entries:
    Dr Finance cost $375
    Cr Accrued redeemable preference shares $375

    why not?
    Debit finance cost-375
    credit preference share-375-the same sense as dividend payable case?

    Dr Retained earnings $10,000
    Cr Dividend payable $10,000-this is because when dividend is declared and is not paid and we recognise it under current liability as dividedn payable right?

    why not

    debit RE-10000
    credit Cash-10000

    April 19, 2021 at 4:29 pm #618230
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    Preference shares:

    We debit finance cost and credit accrued pref share dividends.
    We cannot credit preference shares – the preference share capital doesn’t change because of the dividend!!

    Ordinary shares:

    We can’t credit cash because we haven’t paid any cash. Declaring a dividend does not mean that they have paid it yet!!

    April 20, 2021 at 11:12 am #618287
    kennigara
    Participant
    • Topics: 193
    • Replies: 250
    • ☆☆☆

    ordinary share yes I understood.

    Preference share what i do not understand when company pays dividend over preference share do we always credit accrued redeemable preference share?if we credit accrued redeemable preference share then we recognised it unedr current liability?

    April 20, 2021 at 4:23 pm #618313
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54700
    • ☆☆☆☆☆

    There is no such account as “accrued redeemable preference share”. We credit accrued preference dividend account.

    It is recognised as a current liability because unlike ordinary dividends it does not have to be approved by shareholders and is an expense of the current period.

    April 20, 2021 at 4:33 pm #618315
    kennigara
    Participant
    • Topics: 193
    • Replies: 250
    • ☆☆☆

    i think i found the same question for PS in your note

    A company has in issue 10,000 5% Preference Shares of $1 each. The dividend is payable halfyearly.

    debit cash-10000
    credit preference share-10000

    debit finance cost-250
    credit accrued preference dividend account-250

    i think it is the almost the same question from context point of view

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    Posts
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