Due Date: last period, week 4, 25th March 2016
Corporate Accounting BA 224.2
ASSIGNMENT ONE /40
Due last period Week 4
Question 1
Nature and regulation of companies (9marks, 3 marks each)
With reference to the operation of companies in Papua New Guinea, discuss the roles played by:
a) the Investment Promotion Authority (IPA) of Papua New Guinea, (3 marks)
b) Port Moresby Stock Exchange (POMSoX); and (3 marks)
c) CPA Papua New Guinea; (3 marks)
Question 2
Issue by instalments, oversubscription, forfeiture and reissue. (16 marks)
On 1 April 2013, Koiari Park Ltd was incorporated and a prospectus was issued inviting applications for
100 000 shares, at an issue price of K10, payable K5 on application, K2.50 on allotment and K1.25 on
each of two calls to be made at intervals of 4 months after the date of allotment.
By 30 April, applications were received for 120,000 shares. On 3 May, the directors allotted 100 000
shares to the applicants in proportion to the number of shares for which applications had been made.
The surplus application money was offset against the amount payable on allotment. The balance of the
allotment money was received by 10 May. Legal costs of forming the company were K1300 and were
paid on 11 May. Share issue costs of K800 were also paid on the same date.
The two calls were made on the dates in the prospectus, but the holders of 10 000 shares did not pay
either call. In addition, a holder of another 5000 shares did not pay the second call. On 10 March 2014,
as provided by the company’s constitution, the directors forfeited the 15 000 shares on which calls were
unpaid.
On 25 March 2014, the forfeited shares were reissued as fully paid for a consideration of K9 per share.
Costs of forfeiture and reissue amounted to K250. The constitution does not provide for refund of any
balance in the forfeited shares account after reissue to former shareholders.
Required
A. Prepare journal entries to record the above transactions. (7 marks)
B. Prepare ledger accounts to reflect the above transactions (6 marks)
C. Prepare the equity section of Koiari Park’s statement of financial position. (3 marks)
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Due Date: last period, week 4, 25th March 2016
Question 3
Equity adjustments, and statement of changes in equity (15 marks)
Equity of Eriama Ltd at 14 February 2014 consisted of:
Share capital:
600 000 shares (fully paid)
K600 000
400 000 shares (issued for K1 and paid to 50t)
200 000
General reserve
800 000
200 000
Plant replacement reserve
50 000
Retained Earnings
90 000
The following events occurred during 2013:
Feb 15
Interim dividend of 10t per share declared and paid out of retained earnings.
Shares partly paid were to receive a proportionate amount of dividends.
April 2
Final call made on the 400 000 partly paid shares.
May 30
All call money received.
June 30
Profit before tax for the year was K630 000 out of which the following
appropriations were made:
(a) Income tax expense
(b) Transfers to reserves:
General reserve
Plant replacement reserve
(c) Directors revalued buildings upwards by K260 000.
Aug 15
K200 000
55 000
20 000
The final dividend of 10t per share on all issued shares was declared and a 1-for5 bonus issue of shares to be satisfied out of the surplus arising from revaluation
of buildings was approved. Shares are valued at K1.20 each.
16
Payment of final dividend out of retained earnings.
30
Allotment of bonus shares.
Required
A.
Prepare the journal entries (in general journal form) to give effect to the above events.
(10 marks)
B.
Prepare the statement of changes in equity up to 30 August 2013. (5 marks)
End of Assignment
2
Due Date: last period, week 4, 25th March 2016
SOLUTION TO ASSIGNMENT 1
Question 1
Nature and regulation of companies (9 marks)
A) Roles of Investment Promotion Authority of Papua New Guinea
 Business registration
 Keeps a national registry of all companies, associations, business groups & business names in





PNG.
Business regulation
Business certification
Administration of PNG’s key business laws such as Companies Act, The Business Names Act, The
Associations Incorporation Act, and Business Groups Incorporation Act.
Certification of foreign companies.
Regulate and monitor foreign investment.
B) Roles of POMSoX
 Provide avenue to potential investors to acquire shares and become shareholders of big
companies
 Where shares of listed companies are traded that is bought and sold.
 Assist the companies with initial and extra capital to finance their operational activities.
C)



CPA PNG
Professional development by way of course study and examinations for its citizens.
Continuing professional development by way of hosting and facilitating conferences
Offer services by way of awareness and promotions to schools that offer business especially in
the areas of financial accounting and reporting.
3
Due Date: last period, week 4, 25th March 2016
Question 2
A. Journal entries
30/4/13 Cash Trust
Application
(applications received for 120 000 shares @ K5)
3/5/13
Dr
K600,000
Cr
K600,000
Application
Share capital
(100 000 shares alloted @ K5 on application)
K500,000
Allotment
Share capital
(100 000 shares @ K10, alloted @ K2.50)
K250,000
K500,000
K250,000
First Call
K125,000
Second Call
K125,000
Share capital
K250,000
(100 000 shares issued @ K10, first call @ K1.25, second call @ K1.25)
Cash Trust
K125,000
Application
K100,000
Allotment
K250,000
(allotment money received 100 000 @ K2.50 less K100 000 received on
application)
Cash Trust
K112,500
First Call
K112,500
(money received from first call, except 10 000 shares @ K1.25)
Cash Trust
K106,250
Second Call
K106,250
(money received from second call, except 15 000 @ K1.25)
Share issue costs (Share capital)
Cash Trust
(cost of share issue paid)
K800
K800
Legal costs (Formation costs)
Cash
(legal costs at formation paid)
K1,300
K1,300
4
Due Date: last period, week 4, 25th March 2016
13/3/14 Share capital (15 000 @ K10)
K150,000
First Call (10 000 @ K1.25)
K12,500
Second call (15 000 @ K1.25)
K18,750
Forfeited shares liability
K118,750
(15 000 shares forfeited, 10 000 shares paid to K7,50, 5000 shares
paid to K8.85)
Cash Trust
Forfeited shares laibility
Share capital
(re-issue of 15 000 shares as fully paid to K9)
K135,000
K15,000
K150,000
Forfeited shares liability
Cash Trust
(re-issue costs paid)
K250
K250
B. Ledger Accounts
10/3/14 First Call
Second call
Forfeited shares liability
balance c/d
Share Capital
K10,000 30/4/13
K37,500
K102,500
K1,000,000
Application
Allotment
First call
Second call
Cash trust
Forfeited shares liability
K1,150,000
balance c/f
Share capital
Allotment
Application
K500,000
K100,000
K600,000
5
Cash trust
K500,000
K250,000
K125,000
K125,000
K135,000
K15,000
K1,150,000
K1,000,000
K600,000
K600,000
Due Date: last period, week 4, 25th March 2016
Share capital
Alltoment
K250,000
Cash trust
Application
K250,000
Share capital
First Call
K125,000
K150,000
K100,000
K250,000
Cash trust
Share capital
K125,000
Share capital
Second Call
K125,000
Cash trust
Share capital
K125,000
Share capital
Cash Trust
balance c/d
30/4/13 Application
Allotment
First call
Second call
Share capital
Forfeited shares liability
K15,000
Share capital
K250
K103,500
K118,750
balance c/f
Cash Trust
K600,000
K150,000
K112,500
K106,250
K135,000
K1,103,750
30/4/13
Cash Trust
Balance b/f
Share issue costs
Re-issue costs
K112,500
K12,500
K125,000
K106,250
K18,750
K125,000
K118,750
K118,750
K103,500
K800
K250
Cash (General funds) K1,102,700
K1,103,750
Cash (General Funds)
K1,102,700
Legal costs
Balance c/d
K1,102,700
K1,101,400
6
K1,300
K1,101,400
K1,102,700
Due Date: last period, week 4, 25th March 2016
Optional entries (not required)
Cash
Cash trust
(transfer of funds to general funds)
Forfeited shares liability
General reserve
(transfer balance to general reserve)
K1,102,700
K1,102,700
K103,500
K103,500
Equity Section of the Statement of Financial Position
Equity (3 marks)
Share Capital:
100 000 shares (fully paid @ K10)
K1000 000
Less Share issue costs
K
Net Share Capital
K 999 200
General reserve
(800)
K 103 500
7
Due Date: last period, week 4, 25th March 2016
Question 3 (15 marks)
A) Journal entries
Dr
K80,000
Cr
15-Feb Retained Earnings (Dividend paid)
K80,000
Cash
(interim dividend declared and paid @ 10t, 5t for partly paid shares
proportionately) [(600 000 x 10t) + (400 000 x 5t)]
K200,000
2-Apr Final Call
K200,000
400 000 shares (Share Capital)
(final call on 400 000 shares issued at K1, paid to 50t)
K200,000
30-May Cash
K200,000
Final Call
(all call money received)
30-Jun P or L Summary
Retained earnings
(transfer of profit to Retained earnings)
K630,000
30-Jun Income tax expense
Income tax payable
(income tax for current year)
K200,000
K630,000
K200,000
K75,000
Retained Earnings
General reserve
Plant replacement reserve
(transfer to reserves from retained earnings)
Buildings (Fixed Asset)
Buildings revaluation surplus
(buildings revalued up by K260 000)
K55,000
K20,000
K260,000
K260,000
K100,000
15-Aug Retained Earnings
K100,000
Final dividend payable
(600 000 shares & 400 000 shares @ 10t dividend declared)
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Due Date: last period, week 4, 25th March 2016
16-Aug Final dividend payable
Cash
(payment of final dividend)
K100,000
K100,000
30-Apr Buildings revaluation surplus
K240,000
Share capital
K240,000
(payment of shares under bonus issue out of revaluation surplus,
1 for every 5, @ K1.20)per share) (1000 000/5 = 200 000 @ K1.20))
B) Eriama Ltd
Statement of Changes in Equity
for the period ended 30 August 2013
Share Capital
600 00 shares (fully paid)
400 000 shares (fully paid)
200 000 shares issued @ K1.20
K600,000
K400,000
K240,000 K1,240,000
Reserves:
Retained Earnings
Retained earnings @ 14 Feb
Profit for the year
Interim dividend paid
Final dividend paid
Amounts transferred to General Reserve
Amounts transferred to Plant Replacement Reserve
K90,000
K630,000
-K80,000
-K100,000
-K55,000
-K20,000
Retained Earnings @ 30 August
K465,000
General Reserve
General Reserve @ 14 Feb
Transfer from Retained Earnings
General Reserve @ 30 August
K200,000
K55,000
K255,000
Plant Replacement Reserve @ 14 Feb
Transfer from Retained Earnings
Revaluation Surplus
Building Revaluation Surplus
Bonus Shares issues
9
K50,000
K20,000
K70,000
K260,000
-K240,000
K20,000