QUESTION 1

You have recently been appointed as the accountant of Dimond Glitter Ltd. The entity has
unauthorised share capital of:

 250 000 ordinary shares of no par value; and

 500 000 15% cumulative preference shares of no par value (redeemable at the option of the
company)

An extract of the trial balance at 30 June 20.19 indicate the following balances:
Rand
Ordinary share capital (200 000 shares issued at R1) 200 000
15% Preference share capital (300 000 shares, issued at R4) 1 200 000
Retained earnings 490 000
Current tax payable: Dividend tax ?

Additional Information:

The dividend tax rate is 20%.

Profit after tax for the financial year ended 30 June 20.20, amounts to R280 000. The profit of
R280 000 does not include any of the below mentioned adjustments.

At year end, 30 June 20.20, you still need to account for the following transactions as
indicated on the following dates:

1/08/20.19 The company decided to make a rights issue and issued 1 ordinary share for
every 1 ordinary share held. The shares were issued as follows:

Shares were issued at R1 per share. (The current market price was R2 per
share.)

All shares were allotted. The accountant recognised the rights issue as follows:

Dr Bank (SFP) R200 000

Cr Suspense account (SFP) R200 000

R4 000 share issue costs were paid The accountant recognised these costs as
follows:
Dr Suspense account (SFP) R4 000
Cr Bank (SFP) R4 000.
28/02/20.20 It was decided to buy-back 50 000 ordinary shares at a price of R1,50 per
share. The market value of the shares was R1,20 on this date.

To fully fund the share buy-back, the company issued preference shares at an
issue price of R4 per share.
30/06/20.20 A preference dividend of R183 750 (correctly calculated), was declared and
paid on this date.

An ordinary dividend of R0.40 per share was declared to all outstanding

ordinary shareholders (excluding treasury shares) registered on 30 June 20.20.

Payment of the dividend will only take place on 15 July 20.20.

 Question 1.1

REQUIRED:

Prepare the correct journal entry on 1 August 20.19 for the rights issue of shares? You must
derecognise the suspense account entry.

Account name: Debit Credit

Rand Rand

Question 1.2

REQUIRED:
Prepare the journal entry to account for the share issue that was recognised in the suspense
account at the end of the financial year at 30 June 20.20 in the general ledger of Dimond
Glitter (Pty) Ltd.

Debit Credit
Account name:
Rand Rand

Question 1.3

REQUIRED:
Prepare the journal entry for the buy-back of shares on 28 February 20.20 in the general
ledger of Dimond Glitter (Pty) Ltd.

Account name: Debit Credit

  Rand Rand

Question 1.4

REQUIRED:
Prepare the journal entry for the recognition of dividends declared on 30 June 20.20 in the
general ledger of Dimond Glitter (Pty) Ltd.

Account name Debit Credit

  Rand Rand
 Question 1.5

Prepare the Statement of changes in equity of Dimond Glitter Ltd the year ended 30
June 20.20.
 QUESTION 2

The following information for Jolly Ltd is in regards to the share capital issued.

All shares issued in Jolly Ltd are no par value shares.

Jolly Ltd was incorporated with an authorised capital of 200 000 ordinary shares of no par
value. The founders of the company subscribed and paid for 15 000 shares at R4 each on 2
January 20.19. On 1 June 20.19, the 95 000 shares were issued to the public at R5.50 each.

On 1 May 20.20, 55 000 shares were offered to the public at R7.25 each. These shares were
underwritten by Zulu-undertakers Ltd for a commission of 2%. On 31 May 20.20 40 000
applications ordinary shares were received and allotted to the public.

Question 2.1

Which of the following journal entries are correct for the issue of shares to the founders of
Jolly Ltd on 2 January 20.19?

Select one:

A.
2 January 20.19 Debit Credit
Bank (P/L) 60 000
Ordinary share capital (Equity) 60 000

B.
2 January 20.19 Debit Credit
Bank (SFP) 60 000
Ordinary share capital (Equity) 60 000

C.
2 January 20.19 Debit Credit
Bank (SFP) 60 000
Ordinary share capital (P/L) 60 000

D.
2 January 20.19 Debit Credit
Application & allotment: Ordinary shares
60 000
(L)
Ordinary share capital (Equity) 60 000

E. None of the journals are correct

Question 2.2

Prepare the journal entries of the issue of the shares to the public on 1 May 20.20 in the
general ledger of Jolly Ltd.

Debit Credit
1 May 20.20
Rand Rand

Question 2.3

The underwriters’ commission amounts to:

Select one:

A. 72 500
B. 7 975
C. 64 525
D. 1 100
E. 1 450
F. None of the answers

Question 2.4

Prepare the Note for Share capital in the financial statements of Jolly (Pty) Ltd for the year
ended 31 December 20.20.
 QUESTION 3

Get Well Hospital (Pty) Ltd is a specialised private hospital in the Pretoria area. The company’s
financial year ends on 31 December 20.20.

At 31 December 20.19, an extract its statement of financial position and notes relating to equity
is as follows:

GET WELL HOSPITAL (PTY) LTD

EXTRACT FROM STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 20.19

Note 20.19
Rand
Share capital and reserves
Ordinary share capital 4 450 000
Preference share capital 5 360 000
Retained earnings 4 592 000

GET WELL HOSPITAL (PTY) LTD

EXTRACT FROM THE NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED
31 DECEMBER 20.19
20.19
Ordinary share capital
Authorised Quantity
Ordinary shares of no par value 600 000
Issued
Number of shares in issue at the beginning of the year 450 000
Number of shares issued during the year            0
Number of shares in issue at the end of the year 450 000

1. Redeemable preference shares

Authorised
12% redeemable preference shares of no par value 240 000

Issued Quantity
Number of shares in issue at the beginning of the year 240 000 
Shares redeemed during the year           (0)
Number of shares in issue at the end of the year 240 000 

The preference shares are redeemable on 30 June 20.20 at a premium of 5%, at the option of
Get W ell Hospital (Pty) Ltd.
The following information relates to shares of the company:

 The preference shares are redeemable at the option of the company. On 30 June
20.20, Get Well Hospital (Pty) Ltd decided to exercise that option. The redemption
was partially financed by a rights issue of 1 ordinary share for every 5 ordinary shares
held, made on 30 June 20.20 at their market value of R4 each. All shares offered in
terms of the rights issue were taken up.

 On 30 September 20.20 a capitalisation issue of 1 share for every 3 shares held was
made out of the retained earnings at the market price of R1,50 per share.

 A preference dividend of R19 200 was paid on 30 June 20.20.

 Total comprehensive income for the year ended 31 December 20.20 is R192 000.
There are no components of other comprehensive income.

 The directors are satisfied that the company’s assets, fairly valued exceed its liabilities
and that the company will be able to pay its debts as they become due.

1. Prepare all journal entries to account for the information relating to the year ended
31 December 20.20 presented above.

2. Prepare the statement of changes in equity of Get Well Hospital (Pty) Ltd for the year
ended 31 December 20.20 in accordance with IFRS for SMEs.

Comparative figures are not required.