Question

QUESTION 2: COMPANY EQUITY, SPECIAL REPORTING ISSUES AND EPS Question 2 consists of three separate parts, Part 1, Part 2 and Part 3. All parts are compulsory. Part 1 Kelly Ltd undertook an issue of ordinary and preference shares in April 2018 as stated by the following transactions: 2018 A prospectus was issued inviting applications for 100,000 ordinary shares at an issue price of $1.50, fully payable on application. The prospectus also offered 100,000 10 % preference shares at an issue price of $2,fully payable on application. The issue was underwritten at a commission of $4,500, being $500 relating to the issue of ordinary shares and the balance for preference shares. All unsuccessful application monies were to be returned to the applicants. Applications.closed with the ordinary issue oversubscribed by 40,000 shares and the prefecence shares undersubscribed by 15.000 shares. 100,000 ordinary shares were allotted, applications for 40,000 shares were rejected, and money refunded. 100,000 preference shares were also allotted. The underwriter paid for the shares allocated to her, less the commission due. 1 April: end 10 April: 15 April: 20 April: Required: (10 marks) Prepare journal entries to record the above transactions for Kelly Ltd. Part 2 Required: that Briefly discuss the distinctive features of an intangible asset and a heritage asset in reference (a) (9 marks) to definition and recognition issues in the Conceptual Framework. Why is the element of 'control' problematic for the recognition of heritage assets? (b) (3 marks) Part 3 On 1 January 2016, Rose Ltd has 200 000 ordinary shares outstanding. On 1 March 2016, the company announces a bonus issue of two shares for every share held on that date. By the end of the year Rose Ltd's profit attributable to ordinary shareholders amounts to $900 000 (2015: $600 000). Required: Calculate the 2016 and 2015 basic earnings per share amounts that Rose Ltd must disclose in its financial statements for the year ended 31 December 2016. (5 marks) [TOTAL MARKS: 271
Please show all working

Answer 1

In the books of Kelly Ltd.

Journal (in $)

DATE (2018)	PARTICULARS	DEBIT	CREDIT
April 1	Share Issue expenses A/C Dr. To Underwriters (Equity) A/C To Underwriters (Preference) A/C (On being underwriting commission made due which is to be paid to underwriters.)	4500	500 4000
April 10	Bank A/C Dr. To Share Application (Equity) A/C To Share Application (Preference) A/C (On being money received on share application.)	380000	210000 170000
April 15	Share Application (Equity) A/C Dr. Share Application (Preference) A/C Dr. Underwriters (Preference) A/C Dr. To Equity Share capital A/C To Preference Share capital A/C To Bank A/C (On being ordinary and preference shares being allotted and money on rejected ordinary shares application being refunded through bank.)	210000 170000 30000	150000 200000 60000
April 20	Bank A/C Dr. To Underwriters (Preference) A/C (On being amount for preference shares issued to underwriters received less underwriting commission.)	26000	26000

orking notes:

• Amount to be received towards application for shares. Ordinary shares (including 40,000 oversubscribed) =>140000 * 1.5 = $2,10,000. Preference shares (excluding 15,000 not subscribed) => 85000 * 2 = $1,70,000
• Underwriters to be debited for issue of preference share capital will be for 15,000 preference shares of $2 each so by $30,000.
• Amount to be received by underwriters of preference shares towards shares issued to them will be money to be received towards issue of preference shares less underwriting commission for preference shares ($4,000), i.e.,30000-4000 = $26,000
• Amount refunded through bank for rejected applications of Ordinary shares will be of 40,000 applications extra received with $1.5 each. Amount to be refunded = 40000 * 1.5 = $60,000