The following extract from J Limited’s statement of financial position at 1 January 2022 is available. Equity Issued capital: ordinary shares of $0.25 each Share premium Retained earnings Total equity Non‐current liabilities 7% Debentures (2028) $ 600 000 175000 54000 829000 200000 REQUIRED (a) State two features of revenue reserves which do not apply to capital reserves. 1 ................................................................................................................................................ ................................................................................................................................................... ................................................................................................................................................... 2 ................................................................................................................................................ ................................................................................................................................................... ................................................................................................................................................... [2] Additional information The directors wished to raise additional finance. On 1 April 2022 the company made a rights issue of 2 ordinary shares for every 3 shares held at a price of $0.35 per share. The issue was fully subscribed. REQUIRED (b) Calculate the amount raised by the rights issue of shares. ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ............................................................................................................................................. [3] © UCLES 2023 9706/21/M/J/23 [Turn over Additional information The directors paid an interim dividend of $0.12 per share on 1 July 2022. REQUIRED (d) Calculate the total amount of the interim dividend. 12 Additional information The directors had considered making an issue of debentures rather than a rights issue. (c) Identify two reasons why the directors of J Limited might prefer to raise additional finance through a rights issue rather than by issuing debentures. 1 ................................................................................................................................................ ................................................................................................................................................... 2 ................................................................................................................................................ ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ............................................................................................................................................. [2]
Question
The following extract from J Limited’s statement of financial position at 1 January 2022 is available. Equity Issued capital: ordinary shares of 600 000 175000 54000 829000 200000 REQUIRED (a) State two features of revenue reserves which do not apply to capital reserves. 1 ................................................................................................................................................ ................................................................................................................................................... ................................................................................................................................................... 2 ................................................................................................................................................ ................................................................................................................................................... ................................................................................................................................................... [2] Additional information The directors wished to raise additional finance. On 1 April 2022 the company made a rights issue of 2 ordinary shares for every 3 shares held at a price of 0.12 per share on 1 July 2022. REQUIRED (d) Calculate the total amount of the interim dividend. 12 Additional information The directors had considered making an issue of debentures rather than a rights issue. (c) Identify two reasons why the directors of J Limited might prefer to raise additional finance through a rights issue rather than by issuing debentures. 1 ................................................................................................................................................ ................................................................................................................................................... 2 ................................................................................................................................................ ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ................................................................................................................................................... ............................................................................................................................................. [2]
Solution
(a) Two features of revenue reserves which do not apply to capital reserves are:
-
Revenue reserves represent accumulated profits generated from the company's normal business operations, while capital reserves are created from non-operational activities such as the sale of fixed assets or revaluation of assets.
-
Revenue reserves are available for distribution as dividends to shareholders, whereas capital reserves are typically not distributable as dividends and are used for specific purposes such as share buybacks or debt repayment.
(b) To calculate the amount raised by the rights issue of shares, we need to determine the number of shares issued and the price per share:
Number of shares issued = (2/3) x Number of shares held Price per share = $0.35
Once we have these values, we can multiply them to find the amount raised:
Amount raised = Number of shares issued x Price per share
(c) Two reasons why the directors of J Limited might prefer to raise additional finance through a rights issue rather than by issuing debentures are:
-
A rights issue allows existing shareholders to maintain their proportional ownership in the company. This can help maintain shareholder loyalty and prevent dilution of ownership.
-
By issuing shares through a rights issue, the company can potentially raise more capital compared to issuing debentures. This is because shareholders may be more willing to invest in the company through equity rather than debt instruments.
(d) To calculate the total amount of the interim dividend, we need to multiply the dividend per share by the total number of shares:
Total amount of interim dividend = Dividend per share x Total number of shares
Similar Questions
Below is the statement of financial position for a limited liability company as at 30 Sep 2021: Javid Ltd Statement of Financial Position as at 30/Sep/2021£mAssets Non-current assets Land and building 1,240Fixtures and fittings 1801,420Current assets Inventories 790Trade receivables 710Cash at bank 5002,000Total assets 3,420Equity and Liabilities Equity Share capital: £0.50 ordinary shares 1,500Retained earnings 9002,400Non-current liabilities Borrowing - 9% bank loan 600600Current liabilities Trade payables 400Other payables 20420Total equity and liabilities 3,420 What is the company's Gearing ratio? Group of answer choices20%82%45%53%
8% Debentures (2025) 250Administrative expenses 171Cash and cash equivalents 14Cost of sales 466Debenture interest 8Distribution costs 63Dividends paid 80Inventory at 31 December 2020 33Issued capital:Ordinary shares of $0.25 each at 31 December 2020 500Non-current assetsCost 1140Provision for depreciation at 1 January 2020 140Retained earnings at 1 January 2020 129Revenue 923Share premium at 31 December 2020 70Trade payables 42Trade receivables 792054 2054The following information is also available at 31 December 2020.1 Administrative expenses included insurance of $16 000 for four months ended31 January 2021.2 Depreciation should be provided on non-current assets at 25% per annum using the reducingbalance method. Depreciation charges should be allocated 20% to distribution costs and 80%to administrative expenses.3 The account of a credit customer, $3000, should be written off to administrative expenses asan irrecoverable debt.4 Debenture interest was outstanding for the second half of the year. The directors had issuedadditional debentures of $50 000 on 1 October 2020.
Statement of Financial Position (sebelum koreksi) Marine CompanyPer 31 Desember 2024 (dalam rupiah)ASSETCash 5,000,000Account Receivable 100,000Equipment – Machine 10,000,000Accumulated Depreciation – Machine (2,000,000) Supplies 8,000,000Total Asset 21,100,000LIABILITIES AND EQUITYAccount Payable 11,100,000Owner’s Equity 10,000,000Total Liabilities and Equity 21,100,000 Income Statement (sebelum koreksi) Marine CompanyPer 31 Desember 2024 (dalam rupiah)RevenueSales Revenue 13,063,000 Rent Revenue Total Revenue 1,000,000 14,063,000Expenses Insurance Expense 500,000 Depreciation Expense 200,000 Salaries & Wages Expense Total Expenses 5,000,000 5,700,000Income before tax 8,363,000Income tax (40%) 3,345,200Income after tax 5,017,800Pada akhir 2024 diketahui temuan-temuan berikut:1. Penyusutan mesin pada bulan Maret dicatat Rp1.000.000 yang seharusnya Rp1.100.000.2. Pada 17 Juni belum mencatat pendapatan dari sewa gudangnya sebesar Rp500.000.3. Transaksi pembelian bahan habis pakai pada 25 Desember dicatat sebagai pembelian tunai yang seharusnya pembelian secara kredit sebesar Rp2.000.000, belum dilunasi sampai 31 Des.4. Setelah melakukan stock opname diketahui sisa barang di gudang yaitu sebanyak Rp6.500.0005. Kesalahan pencatatan transaksi penjualan kredit seharusnya Rp6.400.000 dicatat Rp5.000.000 (pencatatan cost of goods sold sudah benar).Diminta:Buatlah statement of financial position setelah koreksi
At the end of fiscal year 2021, company A discloses the following balance sheet:AssetsNon-cash current assets $1,200,000Non-current assets $3,000,000Long-term equity Investments $2,000,000Total $6,200,000Equity and LiabilitiesCurrent debt $500,000Other current liabilities $200,000Non-current debt $4,000,000Deferred tax liability $200,000Provisions for bad debt $160,000 Equity $1,140,000Total $6,200,000Company A’s net operating assets and net debt equal Group of answer choicesC. $5,640,000 and $4,500,000, respectivelyA. $3,440,000 and $2,300,000, respectivelyB. $4,200,000 and $4,500,000, respectivelyD. $6,200,000 and $5,060,000, respectively
A company commenced business on 1 July 2022. On 30 June 2023, an extract of the statement of financial position prepared for internal purposes, but excluding the effect of income tax, disclosed the following information: AssetsLiabilitiesCash$20,000Accounts Payables$50,000Inventories60,000Provision for annual Leave8,000Plant200,000 Accumulated Depreciation(20,000) Additional information: The plant was acquired on 1 July 2022. Depreciation for accounting purposes was 10% (straight-line method), while 20% (straight-line) was used for tax purposes. The tax rate is 30%.The deferred tax liability and deferred tax asset are:Group of answer choicesDTL = $2,400 and DTA = $6,000DTL = $20,000 and DTA = $8,000DTL = $8,000 and DTA = $20,000DTL = $6,000 and DTA = $2,400
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.