ACCOUNTING FOR COMPANIES- Dividends and reserves

Financial Accounting 1 A (AFE 3691) 05 April 2017

Class exercise

Africa Ltd was formed with an authorized share capital of 1 000 000 ordinary shares of N$ 1each and
500 000 6% preference shares of no par value. The company’s year end is 28 February.

The following information is extracted from the accounting records of Africa Ltd as at 01
March 2014:

Issued share capital: N$

Ordinary share capital 500 000

6% Stated preference share capital 300 000

Retained earnings 575 000

Share premium 250 000

Revaluation reserve 50 000

Asset replacement reserve 150 000

Land and buildings 350 000

Additional information:

1. On 01 December 2014 the company offered 100 000 preference shares to the public for
N$ 4.50 per share. The offer was fully subscribed and on 24 December allotment took place.
2. On 01 February 2015, the board of Africa Ltd resolved the following:
 Declared an ordinary dividend of N$ 0,50 per share payable on 03 March 2015.
 Decided to increase the asset replacement reserve with N$ 50 000
3. The company’s profit for the year amounted to N$ 900 000. According to the company’s
solvency and liquidity test, it had sufficient cash resources to pay dividends to ordinary and
preference shareholders.
4. On 24 February land and building was revalued by a sworn appraiser to be N$ 500 000

REQUIRED:

a) Record the issue of shares in the general journal of Africa Ltd.

b) Calculate the dividend payable to the ordinary and preference shareholders
c) Record the transaction with regard to the declaration of the dividend in the general journal of Africa Ltd .
d) Record the entries in the general journal pertaining to the increase in the asset replacement reserve
and the revaluation of land and buildings.
a) Prepare the statement changes in equity for Africa Ltd for the year ended 28 February 2015.