At a meeting of the board of directors of Barby Limited it was decided : 1. To redeem the redeemable preference shares of the company on 30 September 2006. 2. To achieve this by a fresh issue of the maximum number of ordinary shares of permissible without the necessity of calling a meeting of shareholders. 3. That the issue price for the proposed issue would be R1, 20 per share 4. That the redemption should be made in such a way that would have the minimum effect on distributable reserves. 5. That after the redemption and the issue have been made, a proposal be put to the shareholders in a general meeting that increased the authorized share capital by an amount sufficient to allow capitalisation issue of one ordinary share for every two ordinary shares already held. This is also to be arranged so that there is a minimum effect on distributable reserves. The following information has been extracted from the accounting records of Barby Limited at 31 August 2006 80 000 ordinary shares of no par value - stated capital R72 500 25 000 12% redeemable preference shares of R2 each 50 000 Share premium account 2 500 Surplus on revaluation of land 50 000 Retained earnings 65 000 Notes 1. The redeemable preference shares are redeemable at a premium of 20c per share at any time at the option of the company. 2. The authorized share capital of the company is: 100 000 ordinary shares of no par value; and 25 000 redeemable preference shares of R2 each. 3. The directors have the power to issue unissued shares. 4. The company has sufficient cash, together with the proceeds of the fresh issue, to make any payments which may be required. 5. The company earned a net income after taxation of R5 000 for the month of September 2006. 6. Expenses related to the share issue amount to R1 000. 7. The year end of the company is 31 March. Required (a) Record the journal entries required to give effect to the redemption and the fresh issue of shares on 30 September 2006, in accordance with the directors' decisions in point 1 to 4. (b) Prepare the 'Capital Employed section of the balance sheet, as it would appear immediately after the redemption and fresh issue. Presentation must comply with requirements of the Companies Act. Show all working separately. (c) Illustrate by means of a pro forma journal entry the effect of the directors' decision (point 5), if it should be confirmed by the shareholders