Tutorial 7
Company Accounts
Question 1
a. Companies or more commonly referred to as limited companies, came into
existence originally because of the growth in the size of businesses, and the need
to have a lot of people investing in the business who would not be able to take part
in its management. Why do you think a partnership was not inappropriate form of
business in this case?
b. Discuss the differences between the financial statements of a sole trader and a
company.
c. Why do you think an investor might purchase preference shares rather than ordinary
shares in a company?
d. Discuss the advantages and disadvantages of forming a company.
Tutorial 7
Company Accounts
Question 2: Rights Issue
Bunker Company has 4,000,000 shares of $1 each in issue. These shares are traded
on the stock market at a current market price of $4 each. The company now decides
to make a 1 for 4 rights issue at $3.20 per share.
Extract of the company’s statement of financial position as follows:
Current Assets
Bank
$
1,400,000
Equity
Ordinary share capital
4,000,000
Share premium
600,000
Required:
i.
ii.
Calculate the total value of the rights issue.
Show the effect of the rights issue in the extract of statement of financial position.
Question 3: Bonus Issue
Capco Company’s balance sheet is as follows:
$000
Non-current assets
Current assets
Total assets
1,230
510
1,740
Equity and Liabilities
Share capital: ordinary shares of $0.25 each
Share premium
Retained earnings
Total equity
Non-current liabilities
Current liabilities
Total equity and liabilities
400
170
520
1,090
400
250
1,740
The company makes a 1 for 2 bonus issue.
Required: Prepare a summary balance sheet immediately after the bonus issue.
Tutorial 7
Company Accounts
Question 4: Margo Limited
The following trial balance has been extracted from the books of Margo Ltd for the
year to 31 January 2017:
Cash and cash equivalents
Plant and equipment:
At cost
Accumulated depreciation (at 31 January 2017)
Retained earnings (at 01 February 2016)
Profit for the financial year (to 31 January 2017)
Ordinary shares
10% Preference shares at $1 each
Inventory (at 31 January 2017)
Trade payables
Trade receivables
10% loan stock
Dr
$
75,000
Cr
$
70,000
25,000
15,000
10,000
50,000
60,000
17,000
12,000
20,000
182,000
10,000
182,000
Additional information:
1. Margo Ltd`s authorized share capital is $100,000 of $1 ordinary shares.
2. During the year, the company advertised a prospectus for issue of made the
following issues:
(a) 6,000 ordinary shares were traded on stock exchange at $1.20 each;
(b) 4,000 preference shares were issued at $1.60 each;
3. 1 for 4 bonus shares were also made during the year. The issue made in part 2(a)
was not eligible for this bonus issue. The retained earnings are to be used for this
purpose.
4. Corporation tax owing at 31 January 2017 is estimated to be $3,000.
Required:
Prepare Margo Ltd`s income statement and comprehensive income for the year to 31
January 2017, statement of changes in equity and a statement of financial position as
at that date.
Tutorial 7
Company Accounts
Question 5: Motex Limited
The following trial balance has been extracted from the books of Motex Ltd for the year
to 30 June 2023:
Dr
$
Ordinary shares at $0.50 each
5% Preference shares at $1 each
Freehold land and building: Cost
Accumulated depreciation as at 01 July 2022
Plant and Machinery: Cost
Accumulated depreciation as at 01 July 2022
Stocks at 01 July 2022
Purchases
Sales
Directors’ emoluments
Salaries
Administrative expenses
Selling expenses
Auditors’ fees
Trade debtors
Trade creditors
Cash & Cash equivalents
Retained earnings as at 01 July 2022
Share premium
Debenture (10%)
Financing costs
Gain on discontinued operations
Cr
$
100,000
100,000
350,500
14,040
185,000
118,000
165,000
205,000
702,000
54,440
200,000
44,500
24,000
30,000
50,000
33,300
15,900
112,000
50,000
50,000
5,000
1,329,340
50,000
1,329,340
Tutorial 7
Company Accounts
Question 5: Motex Limited
Additional information:
1. The stocks held at 30 June 2023 was valued at $120,500.
2. Adjustments are required for the following accrued expenses:
a. Financing cost due of $5,000
b. Administrative expenses of $8,000
3. Selling expenses paid include a payment in advance of $1,200.
4. Depreciation is to be charged for the year at 10% of the cost of plant and
machinery; and at 2% of the cost of freehold building. The cost of the freehold land
was $200,000.
5. The freehold land was revalued at $240,000 during the year.
6. 5% of trade debtors were deemed as bad debts.
7. The directors decided to make a rights issue of 2 for 5 at $0.80 each.
8. Corporation tax on profits due for the year ended 30 June 2023 was estimated to
be $10,600.
Required:
Prepare Motex Ltd`s income statement and comprehensive income for the year to 30
June 2023, statement of changes in equity and a statement of financial position as at
that date.