Question

Sugar Ltd was involved in the following transactions during 1 July 2019 to 30 June 2020 financial period.

1. On 5 November 2019 the directors of the company decided to raise extra capital by issuing 2 million ordinary shares publicly at a price of $2 each share. The company received application monies of $4,800,000 for 2.4 million shares on 30 November.
2. The company decided to allot shares to applicants on the basis of 10 shares for every 12 shares applied for on 30 December.
3. On 30 December, the excess amounts paid on application were refunded to applicants after the allotment.
4. The funds raised were transferred to the company’s business account.
5. The company paid $300,000 interim dividends from prior retained earnings to ordinary shareholders on 7 February 2020.
6. The company issued 280,000 bonus shares at a price of $2 per share from general reserve on 30 June 2020.
7. The company earned $700,000 profit during the financial year ended 30 June 2020.

Required:

Provide journal entries to record the above transactions for 2019/2020 financial year. (Narrations are required)   

Answer 1

Solution:-

Journal entries in the books of Sugar Ltd.

Date	Particulars		Amount (Dr.)	Amount (Cr.)
05-11-2020	Bank A/c (total application amount)	Dr.	$4,800,000
	To Share Application A/c			$4,800,000
	(Being application money received for 2.4 million shares@ $2 each)
30-12-2020	Share Application A/c	Dr.	$4,800,000
	To Share Capital A/c (application amount)			$4,000,000
	To Bank A/c (refund)			$800,000
	(Being share application money on 2,000,000 shares @ $2 each, transferred to share capital, money on 400,000shares @ $2 each, refunded)
07-02-2020	Retained earnings A/c	Dr	$300,000
	To Dividends payable A/c			$300,000
	(Being Declared of cash dividend to be )
07-02-2020	Dividends payable A/c	Dr	$300,000
	To Bank A/c			$300,000
	(Being payment of cash dividend to be )
30-06-2020	General Reserve A/c (280000shares x $2)	Dr.	$560,000
	To Share Capital A/c			$560,000
	(Being 280,000 bonus shares of $2 issues out of general reserve)
30-06-2020	Profit/ Loss A/c	Dr.	$700,000
	To Reserves			$700,000
	(Being profit at year end transferred to reserves of the company)

Note- The transfer of Amount from companies bank account is just a transfer and thus not reflected in journal.