The financial year of LS Limited ends on 30 June. The income statement for the year ended 30 June 20–3 showed a profit for the year of $7,300.

a. Complete the following partially prepared statement of changes in equity for the year ended 30 June 20–3.

The following additional information is provided on 30 June 20–3:
                                                                                                                              $
Land and building at cost ......................................................................  98,000
Fixtures and equipment at cost .........................................................     50,000
Motor vehicles at cost .........................................................................     36,000
Trade payables ..............................................................................              8,450
Trade receivables ..........................................................................            16,800
Other payables .................................................................................              870
Other receivables ...........................................................................                650
Inventory ..................................................................................                  15,680
Provision for doubtful debts ........................................................                 420
Provision for depreciation of fixtures and equipment ................         13,550
Provision for depreciation of motor vehicles ...............................         22,500
5% debentures (repayable in 10 years) ............................                      20,000
Bank overdraft ...........................................................................                  5,140

b. Prepare the statement of financial position at 30 June 20–3.

The directors of LS Limited are hoping to expand the business and estimate that $45,000 will be required. They discussed whether to issue ordinary shares or 5% debentures and decided to issue 5% debentures.

The directors do not expect the expansion to have any impact on the operating profit for the first three years. After that the annual operating profit is expected to increase by 10%.

c. State two features of ordinary shares.

d. State two features of debentures.

e. Calculate the annual profit after interest the company is expected to earn over each of the next three years.

f. Calculate the annual profit after interest the company is expected to earn in Year 4.

g. Suggest how the ordinary shareholders may be affected if it is decided to issue debentures rather than additional ordinary shares.

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Total Ordinary share capital General Retained earnings $ reserve 2$ $ On 1 July 20-6 100000 15000 8900 123900 Issue of ordinary shares 20000 Profit for the year 7300 ........ Ordinary share dividend for year ended 30 June 20-5 (5000) Transfer to general reserve 3000 On 30 June 20-7