PACC6004 In Class Solution

Chapter 2: Financing company operations

Practice questions
Question 2.21

VIENNA LTD
General journal
2019

July 31 Cash Dr 300

Call Cr 300
(Receipt of call monies)

Aug 7 Share Capital Dr 1 000

Call Cr 200
Forfeited Shares Reserve Cr 800
(Forfeiture of 400 shares)

Sept 17 Preference Dividend Payable Dr 800

Ordinary Dividend Payable Dr 10 600
Cash Cr 11 400
(Payment of final ordinary and
preference dividend)

Dec 31 Retained Earnings /Dividend Paid Dr 7 830

Cash Cr 7 830
(Ordinary interim dividend paid
[26 500 – 400 = 26 100] x 30c)

2020

Feb 15 Cash Trust Dr 16 800

Application Cr 16 800
(Application monies received)
[3 000 x $2.80] + [12 000 x 70c]

Feb 23 Share Issue Costs (Share Capital) Dr 1 600

Cash Cr 1 600
(Payment of underwriting commission)

Feb 25 Application Dr 8 400

Allotment Dr 16 800
Share Capital Cr 25 200
(Issue of 12 000 ordinary shares with
$1.40 due on allotment)
Application Dr 2 100
Cash Dr 14 700
Cash Trust Cr 16 800
(Refund to unsuccessful applicants
[3000 x 70c] and transfer of
balance of cash)
Application Dr 6 300
Allotment Cr 4 200
Calls in Advance Cr 2 100
(Transfer of excess application monies)

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PACC6004 In Class Solution

Mar 15 Cash Dr 12 600

Allotment Cr 12 600
(Receipt of balance of allotment monies)

Mar 31 Preference Share Liability Dr 10 000

Redemption Premium Exp. (10 000 x 5%) Dr 500
Shareholders’ Redemption Cr 10 500
(Redemption of preference shares liability
at a 5% premium out of profits)

Note: Interest up to 31 March has not been recognised on these preference shares. It could
be assumed that the premium on redemption is effectively interest expense. Alternatively,
interest of 8% for 9 months (= $600) could be recognised separately from the redemption
expense.

Mar 31 Retained Earnings/T’fer to Share Capital Dr 10 000

Share Capital Cr 10 000
(Transfer to share capital as required
by ASIC Regulatory Guide 68)

April 4 Shareholders’ Redemption Dr 10 500

Cash Cr 10 500
(Payment to preference shareholders)

June 30 Profit or Loss Summary Dr 3 625

General Reserve Dr 12 500
Retained Earnings Cr 16 125
(Transfer of profit and
transfer from general reserve)

Retained Earnings/Bonus Issue Dr 17 145

Share Capital Cr 17 145
(Issue of 6 350 ordinary shares
under a 1-for-6 bonus issue)
[38 100 shares/6 x $2.70]

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PACC6004 In Class Solution

Question 2.27

BIRCH LTD
2019

to Nov 24 Cash Trust Dr 795 000

Application - Debentures Cr 795 000
(Cash received on 5 300 $200
debentures payable $150 on application)

Nov 30 Application - Debentures Dr 750 000

Debenture Holders Dr 250 000
Debentures Cr 1 000 000
(Allotment of debentures)

Nov 30 Application - Debentures Dr 45 000

Cash Trust Cr 45 000
(Refund to unsuccessful applicants)

Nov 30 Cash Dr 750 000

Cash Trust Cr 750 000
(Transfer from trust account)

Dec 31 Cash Dr 250 000

Debenture Holders Cr 250 000
(Cash received on allotment)

Dec 31 Interest Expense Dr 5 625

Cash Cr 5 625
(Interest paid on debentures:
$750 000 x 0.09 x 1/12)

2020

June 30 & Interest Expense Dr 45 000

Dec 31 Cash Cr 45 000
(Interest on $1 000 000 @ 9% for each ½ year)

2021
June 30 Interest Expense Dr 45 000
Cash Cr 45 000
(Interest on $1 000 000 @ 9% for ½ year)

Nov 1 Debentures Dr 160 000

Interest Expense Dr 4 800
Income on Redemption of Debs. Cr 20 800
Cash Cr 144 000
(Redemption of 800 debentures
on the open market for $180 each, and
interest expense for four months)

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PACC6004 In Class Solution

Nov 1 Brokerage and Stamp Duty Expense Dr 210

Cash Cr 210
(Brokerage and stamp duty on
open market redemption)

Dec 31 Interest Expense Dr 37 800

Cash Cr 37 800
(Interest on 4,200 debentures @ 9% for ½ year)

2022

June 30 Interest Expense Dr 37 800

Cash Cr 37 800
(Interest on 4,200 debentures @ 9% for ½ year)

Oct 31 Debentures Dr 600 000

Interest Expense Dr 18 000
Expense on Redemption of Debs. Dr 54 000
Debenture Holders Cr 672 000
(Redemption of 3 000 $200 debentures
for $224 each, and interest expense
for four months)

Oct 31 Debenture Holders Dr 672 000

Cash Cr 672 000
(Cash paid)

Dec 31 Interest Expense Dr 10 800

Cash Cr 10 800
(Interest on 1 200 $200 debentures
for six months at 9%)

2023
June 30 & Interest Expense Dr 10 800
Dec 31 Cash Cr 10 800
(Interest on 1 200 $200 debentures
for ½ year at 9%)

2024

June 30 Interest Expense Dr 10 800

Cash Cr 10 800
(Interest on 1 200 $200 debentures
for 2/1 year at 9%)

Nov 30 Debentures Dr 240 000

Interest Expense Dr 9 000
Debenture Holders Cr 249 000
(Redemption of 1 200 $200 debentures
at nominal value, and interest expense
for five months)

Nov 30 Debenture Holders Dr 249 000

Cash Cr 249 000
(Cash paid)

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PACC6004 In Class Solution

Question 2.30

1. Share Capital - Preference Dr 375 000

Retained Earnings Dr 15 000
Shareholders’ Redemption Cr 390 000
(Redemption of 150 000
shares at price of $2.60)

Shareholders’ Redemption Dr 390 000

Cash Cr 390 000
(Payment on redemption)

Retained Earnings Dr 375 000

Share Capital - Ordinary Cr 375 000
(Transfer against retained earnings)

2. Cash Trust Dr 240 000

Application - Ordinary Cr 240 000
(Money received on application)

Application - Ordinary Dr 240 000

Share Capital - Ordinary Cr 240 000
(Allotment of 240 000 shares)

Cash Dr 240 000

Cash Trust Cr 240 000
(Transfer on allotment)

Preference Share Liability Dr 225 000

Redemption Premium Expense Dr 15 000
Shareholders’ Redemption Cr 240 000
(Redemption of 150 000 shares
at a price of $1.60)

Shareholders’ Redemption Dr 240 000

Cash Cr 240 000
(Payment on redemption)

3. Debentures Dr 1 000 000

Cash Cr 960 000
Income on Redemption of Debentures Cr 40 000
(Purchase of 20,000 $50 debentures
for $48 each on stock exchange)

4. Cash Dr 37 500
Share Options Cr 37 500
(Issue of 50 000 share options
at 75c each)

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PACC6004 In Class Solution

5. Cash Dr 144 000

Share Capital – Ordinary Cr 144 000
(Issue of 40 000 ordinary shares
as a result of 40 000 options exercised)

Share Options Dr 37 500

Share Capital – Ordinary Cr 30 000
Lapsed Options Reserve Cr 7 500
(Write-off of options exercised, and lapsed)

6. Cash Trust Dr 4 500 000

Application - Debentures Cr 4 500 000
(Cash received as $25 per debenture
Application money on 180 000 debentures)

Application - Debentures Dr 3 750 000

Debentures Cr 3 750 000
(Issue of 150 000 $25 debentures)

Cash Dr 3 750 000

Application - Debentures Dr 750 000
Cash Trust Cr 4 500 000
(Transfer on allotment and refund
to unsuccessful applicants)

7. Convertible Note Liability Dr 25 000

Convertible Noteholders Cr 25 000
(Transfer to noteholders account)

Convertible Noteholders Dr 25 000

Cash Cr 20 000
Share Capital Cr 5 000
(Conversion of 5,000 of convertible
notes by cash payment and issue of
5 000 shares issued for $1 and paid to
75c each: fair value of notes redeemed)

8. Cash Dr 40 000
Share Capital Cr 40 000
(1 for 4 rights issue of
25 000 shares at $1.60)

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PACC6004 In Class Solution

Question 2.32

OLIVE LTD
General Journal
2019

Jul 15 Call - Ordinary Dr 400 000

Share Capital - Ordinary Cr 400 000
(Final call of 80c per share
on 500 000 ordinary shares)

Calls in Advance Dr 8 000

Call –Ordinary Cr 8 000
(Calls already received in
advance cancelled against the
call due)

Aug 31 Cash Dr 372 800

Call – Ordinary Cr 372 800
(Cash received on 466 000
ordinary shares)

Sep 10 Share Capital - Ordinary Dr 48 000

Call – Ordinary Cr 19 200
Forfeited Shares Reserve Cr 28 800
(Forfeiture of 24 000 ordinary
shares for non-payment of 80c call,
with the capital already paid in held
as a reserve)

Oct 31 Cash Dr 56 000

Share Options Cr 56 000
(Issue of 70 000 options
purchased at 80c each)

2020

Jan 31 Cash Trust Dr 200 000

Application – Ordinary Cr 200 000
(Cash trust money held on
application for 100 000 ordinary
shares @ $2 each)

Feb 5 Application – Ordinary Dr 200 000

Share Capital – Ordinary Cr 200 000
(Issue of 100 000 ordinary shares)

Cash Dr 200 000

Cash Trust Cr 200 000
(Transfer of cash)

Feb 5 Share Issue Costs/Share Capital Dr 6 700

Cash Cr 6 700
(Underwriting commission paid)
Feb 18 Share Capital – Preference Dr 180 000

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PACC6004 In Class Solution

Retained Earnings Dr 10 800

Shareholders Redemption Cr 190 800
(Redemption of 180 000
preference shares at $1.06 per
share, out of the proceeds received
from issue of ordinary shares)

Feb 26 Shareholders’ Redemption Dr 190 800

Cash Cr 190 800
(Payment to redeem preference shares)

Apr 15 Cash Dr 78 000

Share Capital – Ordinary Cr 78 000
(Issue of 52 000 ordinary
shares @ $1.50 as a result of
options exercised)

Share Options Dr 56 000

Share Capital – Ordinary Cr 41 600
Lapsed Options Reserve Cr 14 400
(Write-off of share options @ 80c,
with 52 000 being exercised and
18 000 lapsing)