EXERCISE 8.8 8.

Gregory Limited was formed on 1 June 2019 with an authorised capital consisting of 1 000 000 ordinary
shares and 60 000 redeemable preference shares (dividend of 8 cents per share). The subscribers to the
memorandum subscribed for and paid for 10 000 ordinary shares at 50 cents each and were allotted the
shares on 10 June 2019. The company then offered to the public 800 000 ordinary shares at 60 cents per
share and all of the preference shares at R1 each, and the issue was fully underwritten by Bell Brokers
Limited for a commission of 5% of the issue price.

The public applied for 75 000 preference shares and 750 000 ordinary shares and all application money,
including that from the underwriters, was received by 29 June 2019. The shares were allotted on 30 June
2019. On the same date the company paid the underwriting commission, formation (preliminary) expenses of
R7 500 and the refunds to the unsuccessful applicants for preference shares. The preference shares are
redeemable by the company on 1 July 2024 at R1.10 per share.

On 30 June 2019 the company purchased a motor vehicle for R60 000 and paid cash. On the same day, the
company purchased land and took out a 10% mortgage loan with Stand Bank for R120 000 to cover the full
cost of the land. The loan is repayable in 15 equal annual instalments, commencing 1 June 2020.

REQUIRED:

(a) Journal entries to record the above transactions on 1 to 30 June 2019 (narrations may be omitted).

(b) Calculate the effective interest rate for the preference shares.

(c) The Statement of Financial Position of Gregory Limited at 30 June 2019. This statement should
comply with International Financial Reporting Standards. Notes are required insofar as the information
is available.

(d) Prepare a repayment schedule from 30 June 2019 to 1 July 2024 using the effective interest rate and
show the note for preference share capital in non-current liabilities for the year ended 30 June 2021.

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