Theory question 109
Company Accounts9. Ikemesit Enterprises Limited has an authorised share capital of N200,000 divided into 160,000 ordinary shares of N1 each and 40,000 6% preference shares of N1 each. 120,000 of the ordinary shares had been issued and fully paid, while all the preference shares were issued and fully paid. The profit after taxation for the year ended 31st December, 1999 was N49,000. The profit and Loss Account had a credit balance of N24,000 as at 1st January, 1999.
Additional information:
(a) Write off preliminary expenses N1,700. (b) Transfer N6,000 to general reserve and N4,000 to capital reserve (c) Half of the dividend due on the preference shares had been paid in July, 1999. (d) An interim dividend of 5% had been paid on the ordinary shares in September, 1999, and the directors have proposed a final dividend of 10%.
You are required to prepare the: (i) Appropriation Account; and (ii) Balance Sheet extract as at 31st December, 1999.
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(i) Profit and loss appropriation account: net profit after tax 49,000 + balance b/f 24,000 = 73,000.
Less: preliminary expenses written off 1,700; general reserve 6,000; capital reserve 4,000; preference dividend paid 1,200 and proposed 1,200 (6% × 40,000 = 2,400); ordinary interim dividend 6,000 (5% × 120,000) and proposed final 12,000 (10%); total 32,100. Retained profit c/f 40,900.
(ii) Balance sheet extract: authorised capital 160,000 ordinary + 40,000 6% preference = 200,000 (note). Issued and fully paid: 120,000 ordinary shares 120,000; 40,000 6% preference shares 40,000 = 160,000. Reserves: capital reserve 4,000; general reserve 6,000; retained profit 40,900. Shareholders' fund 210,900.
Current liabilities: proposed dividends – preference 1,200, ordinary 12,000 = 13,200.
Dividends are worked on issued shares only; proposed dividends are current liabilities.