AFE3691 ASSIGNMENT 2 QUESTION 1 (31 Marks) On 30 April 2020, Emilia Ltd had these balances in their records: 150 000 ordinary shares at no par value 700 000 5% Redeemable cumulative preference shares at N$2,00 each 300 000 Share premium account 45 000 Capital redemption reserve fund 50 000 Retained earnings 258 000 Bank overdraft 105 350 Preliminary expenses 15 000 Dividend Payable 15 000 Underwriters commission (on ordinary shares) 20 000 Inventory 26 350 Property 1 450 000 Equipment 755 600 Accounts receivables 545 650 Accounts Payables 368 000 The authorised share capital of the company is: 250 000 ordinary shares at no par value. 200 000 5% redeemable cumulative preference shares @ N$2,00 each. 150 000 8% redeemable preference shares at N$2,00 each. The directors have the power to issue un-issued shares and both redeemable preference shares are redeemed at the option of the company. On 15 May 2020, at a meeting of the directors of Emilia Ltd it was decided that on 01 July 2020, to redeem the 5% redeemable cumulative preference shares at a 10% premium and finance this redemption as follows: 1. A fresh issue of 100 000 8% redeemable preference shares at an issue price at N$2,25/share. This offer was over-subscribed by one and a half FACULTY OF COMMERCE, MANAGEMENT AND LAW Page 22 of 25 times with unsuccessful applicants being refunded. 2. The balance is to be provided for out of retained earnings. Additional information: (i) Dividend pertaining to preference shareholders have not been paid since 30 April 2019, as the company incurred operating losses up to the commencement of the present financial year. (ii) To write off all preliminary expenditure and underwriters commission in the Accounting records immediately after the issue of the 8% redeemable preference shares. (iii) Expenses related to the share issue amount to N$7 000 and premium on redemption were to be written off to share premium. (iv) Profit for the period is N$ 950 650. (v) Income tax is payable at 30%. You are required to: 1.1 Prepare the General Journal entries for Emilia Ltd to record the above transactions. (Narrations are not required.) (17 Marks) 1.2 Prepare the statement of changes in equity for the year ended 30 April 2021. (14 Marks) FACULTY OF COMMERCE, MANAGEMENT AND LAW Page 23 of 25 QUESTION 2 (38 Marks) Mururani Ltd is company listed in the Namibia Stock Exchange (NSX) provides you with this information from their Accounting records as at 1 May 2020: 250 000 ordinary share capital at N$ 5.00 1 250 100 000 Cumulative preference share capital at N$ 2.00 200 000 Share premium 55 000 Capital redemption reserve fund 25 000 Revaluation surplus 280 000 Asset replacement reserve 100 000 Retained earnings 800 000 Income Tax ( Refund) 15 000 The board of directors of Mururani Ltd have proposed an aggressive strategic plan to expand the business operations. To finance this strategy the board 01 June 2020 decided to raise capital using the following means: 1. 10%, 50 000 debentures of N$ 100 each was offered at a premium of 5% payable in full on application. The debenture premium is to be amortised over the life of the debentures using the effective interest rate method at 9.2242 %. 2. The company issued 100 000ordinary shares at N$ 5.00, each at a premium of 50c. Additional Information: a) The entire issue is underwritten by Rundu Investment Bank Ltd for a commission of 5%. All debentures were taken-up but applications were received for 80 000 shares. The floatation expenses amounted to N$ 16 000 was paid. b) 1 August 2020 shares and debentures were allotted to applicants and on 15 August 2020 all transactions with the underwriters were completed. c) In a bid to improve Mururani Ltds liquidity the board resolved to offer 1 capitalisation share for every 5 ordinary shares held as at 31 August 2020. This will be done in such a way that there is a minimal effect on distributable reserves. d) These income tax transactions took place during the year; 31/08/2020: Provisional payment N$ 210 000 28/02/2021: Provisional payment N$ 180 000 e) On 30 April 2021 : A transfer of N$ 80 000 was made to asset replacement reserve. Machinery was revalued at during the year resulting in a N$ 120 000 increase in the revaluation surplus It was proposed that ordinary shareholders will not be paid any dividend but the preference share dividend which had accrued was to be provided for. The profit for the period amounted to N$ 1 400 000after all adjustments pertaining to the year were made. FACULTY OF COMMERCE, MANAGEMENT AND LAW Page 24 of 25 Income tax is payable at 30 % You are required to: 2.1 Prepare the journal of Mururani Ltd to effect the above transactions (Narrations are not required) 19 marks 2.2 Prepare the following accounts in the general ledger of Mururani Ltd. Income tax payable (3 marks) Rundu investment bank Ltd (2 marks) Application and allotment: ordinary shares (2 marks) Ordinary share accounts (3 marks) 2.3 Prepare the extract of the statement of financial position for Mururani LTD as at 30 April 2021 only showing non-current liabilities (3 marks) 2.4 Explain four rights of a shareholder ( 4 marks) 2.5 The Companies Act prohibits the company from allocating shares for which the full purchase price has not yet been received. Answer True or False (2 marks) FACULTY OF COMMERCE, MANAGEMENT AND LAW Page 25 of 25 QUESTION 3 (31 Marks ) The following is available for Sparkle Ltd Manufacturers for the year ended 28 February 2019: Balances 01 March 2018 28 February 2019 Direct material 14 000 19 000 Work in process 6 000 40 000 Finished products 1 000 2 700 Rent paid in advance - factory 1 000 Water & Electricity in arrears - factory 700 Transaction occurred during the year all cash, all factory: Water & electricity - factory 20 000 Indirect wages - factory 10 000 Material purchased cash (direct) 60 000 Depreciation factory 8 000 Indirect material purchased cash 14 000 Indirect material used 12 000 Direct labour 75 000 Other overheads paid 12 000 Insurance- factory 14 000 Rent- factory 28 000 Direct material used 55 000 Additional information: Overheads are allocated at 200% of direct material cost Rent in arrears at the end of 2019 was N$ 800 Water & electricity in arrears at the end was N$ 600 Overhead applied are recovered against cost of sales Finished products are transferred to the sales department at cost price plus 20% You are required to: a) The Manufacturing Cost Statement for Sparkle Ltd Manufacturers for the year ended 28 February 2019 (14 marks) b) Prepare the following general ledger account for the year ended 28 February 2019 Manufacturing overhead account. (7 marks) c) Prepare the extracted statement of financial position as at 28 February 2021 only showing inventory. ( 5 marks) c) Explain the concept of unrealised profits and when it may be applied. (5 marks) ~THE END OF ASSIGNMENT 2