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. T00,000 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: 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: 27
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Answer 1

part 1
1)	Bank a/c…………………….Dr	380,000.00
	To Equity Share Application a/c		210,000.00
	To Preferance share application a/c		170,000.00
2)	Equity Share application a/c…………….Dr	210,000.00
	To Equity Share capital a/c		150,000.00
	To Bank a/c		60,000.00
3)	Preferance share application a/c………dr	170,000.00
	Underwriters a/c………………………………..Dr	30,000.00
	To Preferance share capital a/c		200,000.00
	being preferance shares alloted to the extent applied by public and balance by underwriters
4)	Underwriting commission a/c…………….Dr	4,500.00
	To Underwriters a/c		4,500.00
	being underwriting commision due to underwiters in both ordinary and preferance shares
5)	Bank a/c ………………………..Dr	25,500.00
	To underwriters a/c		25,500.00
	being net amount due from underwriters has received
	amount due from underwriters:-
	Amount due to underwriters	4,500.00
	amount due from underwriters	30,000.00
	net amount due	25,500.00
	Part 3
	number of bonus issue	*200000*2	400,000.00
	number of shares outstanding	400000+200000=	600,000.00
	Earnings per share in 2016	Profit attributable to equity shareholders/ number of shares outstanding
		900000/600000
		1.50
	Adjusted earnings per share in 2015	600000/600000
		1.00
	Earnings per share in 2015	600000/200000
		3.00