Question 4 a. Prepare JOURNAL ENTRIES for the following independent transactions

Question

Question 4 a. Prepare JOURNAL ENTRIES for the following independent transactions: i. On 30 November 2015, RMI00,000 of sinking fund investments were sold for RM110,400, and all of the proceeds were used to purchase debentures of RM120,000 cum div for immediate cancellation. The interest dates were 30 June and 31 December Income from sinking fund investments for the year to 31 March 2016 amounted to RMI6,000 was received. (5 marks) All of the redeemable preference shares at original cost of RM100,000, which was issued on 30 March 2013 were redeemed on 1 April 2015 at a premium of 10% per share. The premium was amortised using straight line method for over 5 years. To finance the redemption, the company decided to issue 100,000 ordinary shares, par ii. value of 50 sen at a premium of 20 sen each and paid in full. 4 marks) ii. On 31 December 2015, 40,000 ordinary shares of 50 sen each were offered to the public at 75 sen per share payable as to 45 sen on application (including the premium), 20 sen on allotment and 10 sen on call. The lists were closed on 10 January 2016, and by that date, total applications for 65,000 sharcs had been received. Applications for 5,000 shares received no allotment and the cash paid in respect of such shares was returned. All shares were then allocated to the remaining applicants pro rata to their original applications and the balance of the monies received on applications were applied to the amounts due on allotment. The balances due on allotment (if any) were received on 31 January 2016. The call due on 6 April 2016 was duly paid by the shareholders, with the exception of one shareholder, Shahril who owned 500 shares. These shares were declared forfeited on 20 April 2016 and were reissued as fully paid to Nadhirah on 2 May 2016, at 60 sen per share. (8 marks) b. State how a redeemable preference share shall be classified in accordance with MFRS 132 Financial Instruments: Presentation. Briefly explain the rationale underlying the classification. (3 marks) Total: 20 marks]

Explanation / Answer

a)

(i)

(ii)

(Being Transfer of share applicattion and alllotment money to equity share capital account)

(Being premium on redemption amortized through Profit and Loss a/c in 5 years)

iii)

(Being first call due on 4000 shares @10 sens)

b) As per MFRS 132 Financial Instruments: Presentation, Redeemable Preference Share is a financial Liability. As per MFRS 132, the substance of a financial instrument, rather than its legal form, governs its classificationin the entity's financial statements. Some financial instruments take the legal form of equity but are liabilities in substance and others may combine features associated with equity instruments and features associated with financial liability.

Like redeemable preference shares- A preference share that provides for mandatory redemption by the issuer at a fixed amount and after a fixed period or gives holder the right to require the issuer to redeem the instrument, is a financial liability.

Accrued Interest on investment a/c Dr RM 6667            To Sinking Fund investment a/c RM 6667 (Being accrued interest for 5 Months transferred to sinking fund investment account) Bank a/c Dr RM 110,400     To Sinking fund investment a/c RM 110,400 (Being sinking fund investment sold ) Sinking fund investment a/c Dr RM 3,733          To Sinking Fund a/c RM 3,733 (Being profit on sale of sinking fund RM 3733) Debenture redemption a/c Dr RM 110,400           To Bank a/c RM 110,400 (Purchase of debentures cum-div) (*Divident rate is not available) Debentures a/c Dr RM 120,000     To Debenture Redemption A/c RM 110,400     To General Reserve a/c RM 9,600 (Bening debentures cancelled and profit being transferred to general Reserve a/c) (Assumption- Since no other information is available we have assumed that proceeds from the sale of investments are the only amount available with the company to purchase debentures)

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.