Question

QUESTION

Lemonade Bhd , a manufacturing company was incorporated two years ago. The following is the statement of financial position of the company as at 31 December 2018.

Lemonade Bhd

Statement of financial position as at 31 December 2018

+	RM
Issued and paid up capital
5,000,000 Ordinary shares	10,000,000
1,000,000 7% Preference Shares	5,000,000
Reserves
Retained earnings	10,767,000
Non Current Liabilities
5% Debenture	10,000,000
Current Liabilities
Account payable	573,000
	36,340,000
Financed by:
Non current asset	34,343,000
Investment	850,000
Current Assets
Inventory	250,000
Account receivables	657,000
Bank	240,000
	36,340,000

During the year ended, the company resolved the following matters

1. Bonus issue of one ordinary shares for every ten-share held were given to the shareholder.

2. On 1^st February the company issued 30,000,000 Ordinary shares at RM1.80. The application received were oversubscribed by 5,000,000 units. The applications monies in respect of the unsuccessful applications were returned to the applicants.

3. The company also issued additional 2,000,000 unit of 7% Preference shares at RM 4 each. The shares undersubscribed by half.

4. On 1^st April 2019, 8% Debentures RM500,000 were issued . The effective interest rate is 9% and the issuance cost incurred is RM10, 000. The company decided to use amortised cost method in recognising the debentures.

5. Investment costing RM600, 000 was sold at a gain of RM15, 000.

Required:

1. Show journal entries to record the above transactions.

2. Prepare updated statement of financial position as at 31 December 2019.

Answer 1

A) Journal Entries

Sl.no	Particulars	Debit	Credit
1.	Retained earnings a/c	10L
	ordinary shares a/c (being bonus shares issued)		10L
2.	Cash a/c	540L
	Retained earnings a/c	60L
	Ordinary shares a/c (Being share issued at discount)		600L
3.	Cash a/c	40L
	Retained earnings a/c	10L
	7% preference shares (Being share issued at discount)		50L
4.	Cash a/c	5L
	8% Debentures (Being Debentures issued)		5L
5.	Debenture expense a/c	0.1L
	To Bank a/c (Being Debentures expense incurred)		0.1L
6.	Income statement	0.1L
	To debenture expenses		0.1L
7.	Bank a/c	6.15L
	Investment a/c		6L
	Gain on disposal (Being investment sold)		0.15L

B) Updated statement of financial position

Particular	Amount
Issued and paid up capital
355L Ordinary shares	710L
20L 7% preference shares	100L
Reserves
Retained earnings	27.82L
Non-current liabilities
5%Debentures	105L
Current Liabilities
Accounts payable	5.73L
TOTAL	948.55L
Non-current Asset	343.53L
Investment	2.5L
Current assets
Inventory	2.5L
Accounts receivable	6.57L
Bank	593.45L
TOTAL	948.55L