A Ltd is listed on the Johannesburg Stock Exchange $($JSE$)$ in the retail sector. The following information is presented to you:

The share capital of Adidas Ltd was as follows on $1$ January $2020$:

Authorised

number of shares

Issued

number of shares

R

Class A shares $5000000280000022400000$

Class B shares $5000005000005000000$

Class C shares $2000001000002000000$

Class D shares $10000010000010000000$

The Class A shares have voting rights and Adidas Ltd has no obligation to repay the capital on these shares. Class A

shareholders will only be entitled to a dividend once declared by the directors of Adidas Ltd$.$

The Class B shares are non$-$redeemable shares. Shareholders of Class B shares are entitled to a $6\%$ dividend $($on issue

price$)$ before Class A shareholders.

The Class C shares are non$-$cumulative non$-$redeemable shares. Shareholders of Class C shares have a right to receive a

dividend of $7\%$ of the issue price at $31$ December every year, but only once declared by the Board of directors.

The Class D shares are redeemable preference shares that are entitled to a $7\mathrm{.}5\%$ dividend. The Class D shares were

issued on $1$ April $2015$ and are redeemable at the option of the holders on $1$ April $2025.$

Adidas Ltd experienced liquidity problems during the reporting period ended $31$ December $2020$ even though the company

made a profit, therefore no dividends were paid for that period. The following dividends were paid during the year ended $31$

December $2021$:

Dividend paid during

reporting period

ended $31$ December $2021$

R

Dividend paid during

reporting period

ended $31$ December $2020$

R

Class A shares $1540000-$

Class B shares $600000-$

Class C shares $140000-$

Class D shares $750000-$

Total dividends paid R$3030000$

ADDITIONAL INFORMATION:

a$.$ On $20$ February $2021$ the company announced a rights issue of four Class A share for every seven Class A shares held

at R$7,75$ per share in an attempt to raise additional capital. The rights were offered to shareholders registered on $1$ March

$2021$ and the closing date of the rights offer was $15$ March $2021,$ with a share certificate issue date of $1$ April $2021.$

Finance bank undertook to take up any unsubscribed rights within seven days of the closing date and underwrote the rights

offer at a commission of $1\%.$

Adidas Ltd received applications amounting to R$9300000($for $1200000$ shares$).$ Share issue costs $($excluding

underwriter$$s commission$)$ totalled R$76000.$

The directors have concluded that this offer does not include a bonus$-$element for IAS $33$ Earnings per share purposes.

b$.$ An extract of the retained earnings as presented in the Statement of changes of equity of A Ltd for the year ended $31$

December $2021$ is as follows:

Retained

earnings

R

Balance as at $1$ January $20204660000$

Total dividends paid

Total comprehensive income for the year $*$

$(-)$

$5340000$

Balance as at $31$ December $202010000000$

Total dividends paid

Total comprehensive income for the year $*$

$(2280000)$

$8440000$

Balance at $31$ December $202116160000$

$*$ Total comprehensive income equals profit after taxation

REQUIRED:

QUESTION $1$

$[30$

MARKS$]$

$1\mathrm{.}1$ Which class$/($es$)$ of shares does$/($do$)$ not represent equity in the records of Adidas Ltd$?$ Explain why you

are of this opinion.

$(3)$

$1\mathrm{.}2$ Prepare the journals to recognise the rights issue of the Class A shares for the year ended $31$ December

$2021$ as it should have been done in the books of Adidas Ltd$.$ Short journal narrations are required.

$(12)$

$1\mathrm{.}3$ Calculate the earnings per share for the Class A shares of Adidas Ltd for the reporting periods ended $31$

December $2020$ and $31$ December $2021$ in terms of IAS $33$ Earnings per share.

Prepare only the narrative part of the note for earnings per share as it should be disclosed in the financial

statements of Adidas Ltd for the stated reporting periods in terms of IFRS.

$(15)$

Please note:

Show all calculations clearly as marks are awarded for them.

The reconciliation of earnings as part of the note is not required.