Question

Zermatt Holdings Ltd (ZHL) is a public company and was established on the 1st July 20x1 The company decided to go to the public for its first share issue and the prospectus was released on the 2nd July 20X1. Applications were sought for 10,000,000 ordinary shares of $1.00 each payable in full on application on the 31tAugust 20X1. The offer was opl and applications for 12,520,000 shares were received together with the required monies. The share issue was made on 1 September 20X1 and shares issued in proportion to the applications and excess monies were returned to the applicants. On the 21st October 20X1 ZHL paid Intext Share Registry Ltd $128,000 for services it provided in respect of the ordinary share issue. On the 1st November 20X1 ZHL undertook a private placement of 25,000 preference shares. Each share is issued at $25.00 and receives an annual return of 8% payable every 6 months on the last day of April and October each year. The preference shares are redeemable at the company's discretion and dividends are paid out of profits. Full monies were received on the day of issue. For the year ended 30th June 20X2 a profit of $823,000 was recorded after all necessary transactions were recorded against it and this entire amount was retained by the company REQUIREMENTS FOR STAGE 1 1. Prepare all the general journal entries for all share issues and the associated activities for the year ended 30th June 20X2 for Zermatt Holdings Ltd. (NB an entry is respect of the profit is not required and you can assume, therefore, that all entries in relation thereto were recorded by the company). 21 marks Prepare the equity section of the Balance Sheet of Zermatt Holdings Ltd as at the 2. 30th June 20x2. 9 marks ZHL is going well and is looking to acquire another business. To do so it decides to raise some further capital by offering its ordinary shareholders a non-renounceable share rights issue. This decision is made on 1st August 20X2. The offer is 1 ordinary share every 10 ordinary shares held and payable at 90% of the share price on the day of the announcement. The company prepares all the necessary documentation and makes the announcement on the 31st August 20X2. Shareholders who decide to take up the offer must do so by the 30th September 20X2 and pay their money on that date. By the required date 80% of shareholders take up the offer and pay the necessary money Due to the company performing well it decided to issue an interim dividend to its ordinary shareholders. On the 15th February 20X3 it declared and paid the interim dividend at 3 cents per share. At the final Director's Meeting of ZHL for the year held on 16th June 20X3 it was determined that a final dividend on ordinary shares of 4 cents per share will be paid. The final dividend needs to be approved and declared at the annual general meeting which is scheduled for October 10th 20X3. The Directors also decided to offer ordinary shareholders the opportunity to elect to take their dividends in shares (DRP). The conditions are that shareholders who elect for the DRP can take their dividends in shares at 95% of the ASX share price on the day the dividend is declared. When 95% is applied to the ASX share price and the resulting number is not a whole number (ie goes to a part cent) then that number is to be rounded up to the next whole cent. Shareholders have until 30th October 20X3 to elect for the DRP and will have effect for all ordinary share dividends paid after that date. The following are a selection of ASX share prices for ZHL Closing Share Price $ Closing Share Price $ Date Date 1/7/X2 1.01 1/9/X2 1.17 10/7/X2 12/9/X2 1.15 1.03 1.08 1.13 23/7/X2 21/9/X2 31/7/X2 1.15 1.15 30/9/X2 1.23 1.20 1/8/X2 1/10/X2 1.21 1.22 8/8/X2 9/10/X2 17/8/X2 1.26 19/10/X2 1.22 1.20 31/8/X2 31/10/X2 1.25 REQUIREMENTS FOR STAGE 2 1. From the above and previous information prepare all the general journal entries that relate equity transactions that occurred for the year ended 30th June 20X3 for Zermatt Holdings Ltd ZHL held its annual general meeting as intended on the 10th October 20X3 and the final dividend determined in the previous final year was approved, declared and paid. On the 30th October 203 60% of ordinary shareholders advised ZHL that they elected to take shares instead of dividends under the terms of the DRP conditions previously advised. The 6096 was evenly spread across the two shareholder groups. ZHL was having another good year and the Board of Directors wanted to reward the shareholders. As a result it decided to undertake a bonus share issue to all ordinary shareholders to be paid out of the retained profits. These shareholders received 1 bonus share for every 10 shares held. The bonus shares were issued on the 15th November 20X3 at the share price on that day The company decided to continue paying an interim dividend and on the 15th February 20x4 it declared and paid the interim dividend at 3 cents per share. The following are a selection of ASX share prices for ZHL Closing Share Price $ Closing Share Date Date Price s $1.28 $1.33 1/11/20X3 10/1/20X4 10/11/20X3 $1.29 22/1/20X4 $1.30 31/1/20X4 15/11/20X3 $1.25 $1.30 27/11/20X3 $1.30 2/2/20x4 $1.22 1/12/20X3 $1.31 12/2/20X4 $1.19 12/12/20X3 $1.32 15/2/20X4 $1.26 29/12/20X3 $1.35 24/2/20X4 $1.29 3/1/20X4 $1.32 1/3/20x4 $1.38 REQUIREMENTS FOR STAGE 3 1 From the above and previous information prepare all the general journal entries that relate equity transactions that occurred for the year ended 30th June 20X4 for 38 marks Zermatt Holdings Ltd. 2. Calculate how many Ordinary shares are on issue after the payment of the interim dividend on 15th February 20X4. This involves a careful understanding of all the transactions involving share issues since the company began and tracking the individual shareholder groups 12 marks HINT Before paying the interim dividend in Part 1 it might be a good idea to consider the calculations required to answer Part 2

Answer 1

Generally every listed company or any other company which is going to listing gives public issue for the purpose of meeting the requirement of company. Some companies may be used for public issue for Purposes of Acquisitions of any other business or for growing the business.

Generally when ever company is going for public issue it should comply all the requirements of Securities Exchange Board of India.

Stage 1:

1) Journal Entries for the Year ended 30th June 20x2 for Zermatt Holdings Ltd:

Date	Particulars	Amount	Amount
31 Aug 20x1	Bank A/c Dr	12520000
	To Share Application Money A/c		12,520,000
	Being share application money received $1 per share
1 SEP 20x1	Share Application Money A/c Dr	12520000
	To share Capital A/c		10,000,000
	To Bank A/c		2,520,0000
	Being Share application has been transferred to Share capital account and excess amount received has been refunded.
21 Oct 20x1	Share Registry ltd A/C Dr	128000
	To Share Capital A/C		128000
	Being share has been issued for purpose of services received from the share registry ltd
1 Nov 20X1	8% Preference Share Application A/c Dr	625000
	To 8% Preference Share Capital A/c		625000
	Being 25000 pref shares has been issued for $ 25 with paying interest on half yearly basis
1 Nov 20X1	Bank A/ C Dr	625000
	To 8 % pref Share application money A/ c		625000
	Being application money has been received

2)Equity Section of the Balance Sheet for Zermat Holdings Pvt for the year Ended:

Share Capital for Public issue :. $10,000,000

Share for Share registry Pvt Ltd : $128000

8% Preference Share :. $ 625000

Total. :. 10, 753,000

Stage 2:Answer to the Requirement of Stage:

Journal Entries for the year ending June 20X3 for Zermatt Holdings Ltd:

Total Number of Share : 10, 753 000

Ratio : 1: 10

Number of share issued : 1,753,000

Share price i.e 1 Aug 20X2 is. $ 1.23

90% of Share Price $ 1.107

Number of Share Applied I.e 1753,000* 80% = 1402400

31/08/ 20X2 Bank a/ C Dr. $ 1552457

To Share Application A/c (1402400* 1.107)1552457

( being amount share application money received)

1 Aug 20X2 Share Application A/C $1,724,952

To Share Capital A/C. $ 1,402400

To Security Premium. a/c $ 322,552

Being share application money has been called

Equity Section :

Previously :. $ 10,753,000

Newly issued. $1,402,400

Security Premium. $322552

Total. $ 12,477,952

Requirement for Stage 3

​​​​​​1) Total Shares :. 12,155,400

Dividend. :. 12155400*4%=$ 486216

Number of Shareholders require dividend in Shares. $ 486216* 60%. = $ 291730

Journal Entry:

30 June 2014. Dividend Payable A/ c Dr. 291730

To Share Capital A/ C 291730

Being Share issued for DRP scheme shareholdes

Having Security Premium of amount 322,552 that also to be used for bonus issue.

Security Premium A/ c Dr. 322552

Profit & Loss A/c. Dr. 922171

To Share Capital 1244713

​​​​​​( Being Bonus Shares has been issued at 1: 10 ration by using security Premium an d profit or reserves)

2)

Equity Protion:

Toatl Number of Shares after bonus and current financial year assuming that dividend has been paid in cash only there is no issuing of shares

Total Share Capital :. 13,691,843