Question

In: Accounting

January 8 A prospectus was issued, inviting applications for 200,000 “B” ordinary shares at an issue...

January 8 A prospectus was issued, inviting applications for 200,000 “B” ordinary shares at an issue price of $2, payable full on application. The purpose of the issue was to fund the redemption of the preference shares.

200,000 “A” ordinary shares, issued at $1, fully paid

$ 200,000

100,000 redeemable preference shares, issued at $ 4, fully paid

$ 400,000

50,000 $2 Options

$ 100,000

Asset revaluation reserve

$ 100,000

Retained earnings

$ 770,000

February 8     The issue closed fully subscribed, with all money due having been received. The 200,000 “B” ordinary shares were allotted on the same day. As previously indicated, the directors resolved to redeem the preference shares (equity) out of the proceeds of the “B” ordinary shares. Cheques were issued to the preference shareholders.

Required:

General journal entries with narrations and working out

Solutions

Expert Solution

Feb-08 Bank A/c                                                           Dr. 400000
               To Share Application A/c 400000
(Being "B" Shares Issued and Share Alloted)
200000*2
Share Application A/c Dr. 400000
To Share Capital A/c 400000
(Being Share capital transferred)
Redeemable Preference shares             Dr. 400000
                  To Preference Share holder's A/c 400000
(Being Preference shares have been due for redeemed)
100000*4
Preference Share holder's A/c Dr. 400000
To Bank A.c 400000
(Being Paid to preference Share holders)
(As These shares are redeemed by issuing new shares so there is no
need to create Capital Redembtion Reserve Because old capital is
400000 Minus(-) New capital 400000 = 0

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