CAPITAL STRUCTURE

AND FINANCE COSTS

Slides prepared and presented

By
Nelson Pande
 Example
During the year ended 31 December 2018 Lola
company made the following issues of shares:

1. An issue of 100,000 ordinary shares of $1 each at

$1.20 each
2. An issue of 100,000, 5% preference shares of $1 each
at $1 each.
3. An issue of 200,000, 10% loan notes of $2 each at $2
each
Show the journal entries required to record the above
issues.
 EXAMPLE
BONUS AND
RIGHTS ISSUE
Tiny has decided to make a bonus issue of ‘1 for 5’, using the
share premium account for the purpose. This was followed by a
rights issue of ‘1 for 4’ at a price of $1.40 all rights were taken up.
Extract of Tiny’s SOFP Original Updated Updated
after after
Bonus Rights
$000. $000. $000.
ASSETS
Total assets 27,500
EQUITY
Issued share capital @ $1 each 3,000
Share premium 6,500
Retained earnings 18,000
Total Equity 27,500
State the accounting entries required to account for the bonus and
rights issues and prepare an updated summary of Tiny’s statement of
financial position.
PRACTICE
QUESTION
Kitana has decided to make a bonus issue of ‘1 for 4’, using the
share premium account for the purpose. This was followed by a
rights issue of ‘1 for 5’ at a price of $0.75 all rights were taken up.
Extract of Kitana’s SOFP Original Updated Updated
after after
Bonus Rights
$000. $000. $000.
ASSETS
Total assets 39,000
EQUITY
Issued share capital @ $0.50 each 2,000
Share premium 26,500
Retained earnings 10,500
Total Equity 39,000
State the accounting entries required to account for the bonus and
rights issues and prepare an updated summary of Kitana’s statement
of financial position.
 Practice Question
The issued share capital of Amadeus, a limited liability company is as
follows:
Ordinary 10c shares $1,000,000
8% 50c preference shares $500,000
In the year ended 31 October 20X6, the company has paid the
preference dividend for the year and an interim dividend of 2c per
share on the ordinary shares. A final ordinary dividend of 3c per share
is proposed.
What is the total amount of dividends relating to the year ended 31
October 20X6?
A $240,000
B $540,000
C $60,000
D $90,000
 Example
Britafanel ltd's financial year ends on 31 December.
On 31 December 2005 the tax bill was estimated to
be $56 000. During the year 2006 the actual tax for
year 2005 was discovered to be $57 500 and paid. At
31 December 2006 the tax bill was estimated to be
$65 000.
Requirement:
prepare extracts of the financial statements for years
2005 and 2006.
 Practice question 1
Kitana Co's financial year ends on 31 December. On
31 December 2009 the tax bill was estimated to be
$50 000. During the year 2010 the actual tax for year
2009 was discovered to be $45 000 and paid. At 31
December 2010 the tax bill was estimated to be
$62000.
Requirement:
Prepare extracts of the financial statements for years
2009 and 2010.
Examination Type
10
Questions
At 30 June 20X2 a company had $1m 8% loan notes in issue,
interest being paid half-yearly on 30 June and 31 December.
On 30 September 20X2 the company redeemed $250,000 of
these loan notes at par, paying interest due to that date.
On 1 April 20X3 the company issued $500,000 7% loan notes,
interest payable half-yearly on 31 March and 30 September.

What figure should appear in the company's statement of

comprehensive income for interest payable in the year ended
30 June 20X3?

A $88,750
B $82,500
C $65,000
D $73,750