Podcast Beta
Questions and Answers
What is the total number of ordinary shares issued at the end of 20X3?
What is the total number of preference shares issued at the end of 20X3?
What is the amount of preference share liability accrued as at 31 December 20X5?
What is the premium per preference share when redeemed?
Signup and view all the answers
What is the amount of 10% debentures issued?
Signup and view all the answers
What is the amount paid to preference shareholders?
Signup and view all the answers
How many ordinary shares were issued to finance the redemption of preference shares?
Signup and view all the answers
What is the amount of dividend accrued for the year?
Signup and view all the answers
How are preference shares presented in the financial statements?
Signup and view all the answers
What is the nature of 12% preference dividends?
Signup and view all the answers
At what rate are preference dividends recognised?
Signup and view all the answers
What is the number of ordinary shares in issue at the end of the year?
Signup and view all the answers
What is the authorised quantity of ordinary shares?
Signup and view all the answers
What is the quantity of 12% redeemable preference shares redeemed during the year?
Signup and view all the answers
At what premium were the preference shares redeemed?
Signup and view all the answers
What is the effective interest rate on the preference shares?
Signup and view all the answers
What is the preference share liability at 31/12/20X3?
Signup and view all the answers
What is the present value of the future cash flows at 31/12/20X4?
Signup and view all the answers
What is the interest accrued at 31/12/20X4?
Signup and view all the answers
What is the bank's liability at 31/12/20X5 after the payment?
Signup and view all the answers
How should liabilities be recognised?
Signup and view all the answers
What is the effective interest rate?
Signup and view all the answers
What is the cash flow schedule for the preference shares?
Signup and view all the answers
What is the internal rate of return (IRR) for the preference shares?
Signup and view all the answers
What is the purpose of calculating the internal rate of return (IRR)?
Signup and view all the answers
What is the profit before tax?
Signup and view all the answers
What is the tax liability?
Signup and view all the answers
What is the capital and reserves for Klaus Limited as at 30 June 20X5?
Signup and view all the answers
What is the retained earnings for Klaus Limited as at 30 June 20X5?
Signup and view all the answers
What is the debit entry for the recognition of preference shares as a liability on 1 January 20X3?
Signup and view all the answers
What is the total comprehensive income for Klaus Limited for the year ended 30 June 20X5?
Signup and view all the answers
What is the amount of shares issued during the year?
Signup and view all the answers
What is the credit entry for the preference dividend recognised as interest expense/premium accrued and payment of dividend on 31 December 20X3?
Signup and view all the answers
What is the balance of retained earnings as at 30 June X4?
Signup and view all the answers
What is the debit entry for the reclassification of preference shares as a current liability on 31 December 20X4?
Signup and view all the answers
What is the credit entry for the repayment of capital and premium on 31 December 20X5?
Signup and view all the answers
What is the credit entry for the recognition of preference shares as a liability on 1 January 20X3?
Signup and view all the answers
What is the debit entry for the preference dividend recognised as interest expense/premium accrued and payment of dividend on 31 December 20X3?
Signup and view all the answers
What is the credit entry for the reclassification of preference shares as a current liability on 31 December 20X4?
Signup and view all the answers
What is the debit entry for the repayment of capital and premium on 31 December 20X5?
Signup and view all the answers
Study Notes
Journal Entries
- Preference share capital recognized as a liability: 300,000 (debit) and preference share liability (credit) on January 1, 20X3
- Interest expense recognized: 38,811 (debit) and preference share liability (credit) on December 31, 20X3
- Preference dividend recognized as interest expense: 30,000 (debit) and bank (credit) on December 31, 20X3
- Reclassifying preference shares as a current liability: 318,762 (debit) and preference shares (credit) on December 31, 20X4
Effective Interest Table
- Effective interest rate: 12.937%
- Interest accrued: 38,811 on December 31, 20X3; 39,951 on December 31, 20X4; 41,238 on December 31, 20X5
- Premium accrued: 8,811 on December 31, 20X3; 9,951 on December 31, 20X4; 11,238 on December 31, 20X5
Share Capital
- Ordinary shares: 3,000,000 issued, no par value
- Preference shares: 200,000 issued, 12% non-cumulative, no par value
Reconciliation of Number of Shares
- Balance outstanding at April 1, 20X1: 2,000,000 ordinary shares, 200,000 preference shares
- Share issue on July 1, 20X1: 400,000 ordinary shares
- Capitalization issue on December 31, 20X2: 600,000 ordinary shares
- Balance outstanding at March 31, 20X3: 3,000,000 ordinary shares, 200,000 preference shares
Notes
- Liabilities should be recognized at the present value of the future cash flows
- The future cash flows at December 31, 20X4 equal 360,000 (30,000 + 330,000)
- The PV of 360,000 at 12.937% in one year's time = 318,762
Accounting Policies
- Preference shares are presented as long-term liabilities, as they are in substance borrowings
- Dividends on preference shares are recognized in the statement of comprehensive income as interest expense on the effective interest rate basis
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Description
Journal entries for preference share capital, interest expense, and reclassification as a current liability. Understand the accounting treatment of preference shares in a company's financial statements.
