In: Accounting
ABC Ltd commenced operations on 25 September 2016 by issuing 350 000 $5.00 shares, payable in full on application on a first-come, first-served basis. By 30 November 2016 the shares were fully subscribed and duly allotted. There were share issue costs of $10 000. No additional shares were issued during the year ending 30 June 2017. 75 000 fully paid ordinary shares have been issued on 1 October 2017 at the price of $4.00. $135 000 dividends (31.76 cents per share) were declared and paid during the 2018 financial year. A final dividend for 2018 of $51 850 was proposed but not recognised in the financial statements. There was a gain of $20 000 from the cash flow hedge arrangement during the 2018 financial year. Any gain or loss associated with the cash flow hedge is directly recognised in equity. There was no previously recognised cash flow hedge reserve before the 2018 financial year. Q1.What would be the share capital for 2018 to be put in Trial Balance? Q2. How to treat the gain of $20000 from the cash flow hedge in the Trial Balance. Please help
Share Capital issued on 25 September:- 350000 shares of $5 each = $1750,000
Shares issued on 1 October 2017 :- 75000 shares of $4 each = $ 300,000
Dividend Paid during 2018:- $135,000
Final dividend not paid:- $51,580
Q1. Share capital for 2018 would be:-
350,000 Shares issued at $5 each = 1750,000
75,000 shares issued at $4 each = 300,000
Total = $2050,000 Credit Balance
Note: dividend paid or not paid does not effect share capital. Also cash flow hedge wil be shown in reserves and not effect the share capital.
Q2. Cash flow hedge gain of $20,000 will be added in Reserves and shown as :-
Reserves (Cash Flow Hedge) = $20,000 Credit Balance
Edit: Replies to questions asked in Comment:-
Share issue costs of $10000 are also not deducted from share capital and are debited to Profit and Loss account as expenses.
Proposed final dividend of $51850, if proposed before finalisation of financial statements for year ending 30 June 2018, will be debited to Profit and loss account, and if finalised after finalisation of finalcial statements, it will be debited in P&L account next year. Normally, if such dividend is given in adjustments in a question, it is for taking its effect in the books,and should be debited to P&L account.
Hope it clears your doubts.