QUESTION 1 (55 MARKS)

The following information pertains to The Petit Paris Ltd:

The Petit Paris Ltd was incorporated on 01 January 2012 with authorized share capital consisting of:

1 000 000 12% preference shares of no par value,

70 000 10% redeemable of N$ 3 each; and

2 000 000 ordinary shares of N$ 2 each

The following balances appeared in the accounting records of The Petit Paris Ltd on 01

January 2017:

Issued share capital: N$

1 000 000 Ordinary share capital of N$ 2 each 2 000 000

70 000 10% Redeemable preference share capital of N$ 3 each 210 000

500 000 12% Stated preference share capital of no par value 1 000 000

Reserves:

Share premium 275 000

Retained earnings 1 875 255

Assets:

Bank 2 505 105

Property, plant and equipment 750 000

Investment 500 000

During the year of 2017, the following transactions took place:

1. The company offered 500 000 ordinary shares and 250 000 12% preference shares to the public.

2. The full public offer is underwritten by Croissant Brokers Underwriters Ltd for a 5%

underwriters commission.

3. The offer for the subscription of shares opened on 01 May 2017 and closed on

27 May 2017.

4. The ordinary shares were offered at a premium of 50c per share, and the

12% preference shares were offered at N$ 2 each.

5. The public subscribed for 300 000 12% preference shares, and 400 000 ordinary shares and the full amounts payable, were received on the closing date of

27 May 2017.

6. All shares were issued on 11 June 2017, the necessary refunds were made and all transactions with the underwriter were also concluded on this date.

7. All expenses relating to the issue of shares must be written off against the share premium account.

8. The 10% redeemable preference shares are redeemable at premium of 50c per share

on 30 October 2017, at the option of the company. In view of the redemption, the board of directors decided to issue 70 000 ordinary shares at a premium of N$1,50 per share. The new issue was fully taken up on issue. All transactions took place on 30 October

2017. The redemption premium should be written off against the share premium account.

9. On 30 November 2017, at a general meeting of the company it was decided that, in order to protect the liquidity of the company, there will be no cash pay-outs of dividends. Instead the company will issue capitalization shares to shareholders in the ratio of one capitalization share for every five preference shares held and two capitalization shares for every ten ordinary shares held. The preference shares should be capitalized at N$ 2.50 per share. This is to be arranged that there is a minimum effect on distributable reserves such as retained earnings. It was also decided to convert the 12% preference shares of no par value into preference shares having a par value of N$ 1 each.

10. The company declared an after-tax profit of N$ 876 203

11. The company has a 31 December year-end.

REQUIRED:

1. Is The Petit Paris Ltd a public company. Justify your answer. (2 marks)

2. Record the above transactions (relating to the issue of shares, redemption of shares and the capitalisation issue) in the General Journal of The Petit Paris Ltd (20 marks)

3. Prepare the following accounts in the general ledger as at 31 December 2017:

(13 marks)

2.1 Retained earnings

2.2 Ordinary share capital

2.3 12% Preference share capital

4. Prepare the Statement of changes in equity for the year ended 31 December 2017 for

The Petit Paris Ltd (15 marks)

5. Name the four types of profit companies that exist as well as the abbreviation that

should appear at the end of each ones. (4 marks)

6. Describe a reason why you would prefer to incorporate your business as a company instead of trading as a sole proprietor. (1 mark)