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AFF01 SATELLITE TUTORIAL

WEEK 10: SEMESTER 1-2015


TOPIC: ACCOUNTING FOR COMPANIES
LEARNING OUTCOMES
At the end of this lesson students should be able to:

1. Prepare journal entries to record the issue of


shares of a public company
2. Prepare the Shareholders Equity Section of the
Statement of Financial Position
JOURNAL ENTRIES ARE COMPLETED IN THE
FOLLOWING ORDER

Receipt of Application money due as per


prospectus
Allotting of shares to applicants, application of
excess shares, and
Transfer of application monies held in trust to
the cash at bank account
Receipt of allotment monies

Call made on the shares

Receipt of call monies


Application
Cash received from Application:
Dr Cash Trust, Cr Application
Refund Unsuccessful applications-Dr
Applications, Cr Cash Trust
Transfer Cash trust to Cash at Bank account -
Dr Cash at Bank, Cr Cash Trust

Allotment

Record Application: (# of shares issued x


application fee)-
Dr Application, Cr Share Capital
Record Allotment: (# of shares issued x allot
fee)-
Dr Allotment, Cr Share Capital
Transfer Excess application to Allotment and
Calls in Advance, Dr Application, Cr
Allotment, Cr Calls in Advance
Record Cash from Allotment: Dr Cash at
Bank, Cr Allotment

Record Call Dr Call, Cr Share Capital


Call
Transfer Calls in Advance to Calls Account- Dr
Calls in Advance, Cr Calls
Record Cash received from Call Dr Cash at
Bank, Cr Call
QUESTION 2 (I&A BOOKLET: PG22)
On 1/2/2014 the directors of Happy Returns Ltd decided to issue
100,000 shares at a par value of $1. The prospectus states that:
$0.50 is to be included with the application form

$0.25 is to be paid upon allotment

The remainder to be paid when called by the company

Applications were received from 140,000 shares of which 10000


shares were fully paid on 28/2/2014. On 1st March the shares were
allotted as follows:
Allot 100,000 shares including all 10000 fully paid shares

Refund applications on 10000 shares

Apply all remaining excess applications to allotment

All allotment money was received by 28th March.


On 1st April the directors decided to make a call of $0.25 per share.
On 30th April, all money received except on 400 shares.
SOLUTION TO ACTIVITY 1

1. Cash Received from


Journal entry
Applications

1. Applications received Dr Cr
for 140000 shares Cash Trust 75000
(including 10000 fully Application 75000
paid )
10000 x $1 = $10000

130000 x 0.50=$65000

Total Cash = $75000


SOLUTION CONTINUED.
2.Refund Unsuccessful
Journal entry
Applicants

2. Refund 10000 shares Dr Cr


Applications 5000
from applications
Cash Trust 5000
received
10000 x 0.50 = 5000
SOLUTION CONTINUED
3.Transfer Cash trust to
Cash at bank Account Journal entry

3. Cash received from Dr Cr


applications minus the Cash at Bank 70 000
refund (step1 step 2) Cash Trust 70 000

75000 5000= 70000


SOLUTION CONTINUED
4.Record Application
Journal entries
5.Record Allotment

4.Application = Dr Cr
Application 50 000
# of shares issued x
Share Capital 50 000
Application Fee
100000 x 0.50 = 50 000
Allotment 25 000
5.Allotment = Share Capital 25 000
# of shares issued x
Allotment Fee
100000 x 0.25 = 25 000
SOLUTION CONTINUED
6.Transfer Excess Applications
to Allotment & Call in Advance
Journal entry

In this activity, Excess


application is transferred to Dr Cr
allotment:
Applications 20 000
Excess Applications =
Allotment 17 500
Step3 - Step4
Calls In Advance 2 500
a) Cash Trust Transferred to Cash
at Bank account Application Due

70 000 50000 = 20 000


(excess)
b)Fully paid shares : C/I/Advance
(10000 x 0.25) = 2 500 Calls in Advance
Allotment = 20000 2500 =17 500
SOLUTION CONTINUED

7. Cash received from


Allotment Journal entry

Step 5 Step 6(allotment) Dr Cr


Expected Allotment Cash at bank 7 500
minus Allotment already Allotment 7 500
received
25 000- 17 500 = 7 500
SOLUTION CONTINUED

Journal entry
8. Calls Made

Expected call = # of Dr Cr
shares issued x Call fee Call 25 000
100 000 x 0.25= 25 000 Share 25 000
Capital
SOLUTION CONTINUED
9. Transfer Calls in Journal entry
Advance to Call

Calls in Advance from Dr Cr


Step 6 Calls in Advance 2500
Call 2 500
SOLUTION CONTINUED
10. Record Cash received Journal entry
from Call

Cash from Call No.1 Dr Cr


= Step 8 minus Step 9 minus Cash at Bank 22 400
Calls in arrears Call 22 400

=25000-2500 (400 * 0.25)


= 22400
STATEMENT OF FINANCIAL POSITION
Share Capital: 100 000 shares @ 1.00 100 000
Less Calls in arrears (400 shares at 0.25) 100
Paid up Capital $99 900

Represented By:
Cash at Bank $99 900

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