1
ACCOUNTING METHOD II XXXXXXXXXXEQUITY
ASSIGNMENT PART B STAGE 3
Due date/time Friday 19th October XXXXXXXXXX:00pm
Tele Strata Ltd (TSL) is an ASX listed company which provides fi
e to the home
oadband connectivity for telecommunication services. The company has always been
at the forefront of telecommunications development and, as a result, has been very
successful. TSL has a strong record of rewarding its shareholders. The equity section of
its Balance Sheet as at 30th June 20X6 presents as follows:
EQUITY $ 000s
Share Capital
Ordinary shares paid to $4.50 40,320
7.5% pa $10.00 Preference shares 50,000
Reserves
General Reserve 9,576
Foreign exchange translation 8,545
Retained Profits 11,872
TOTAL EQUITY 120,313
NB All Ordinary shares were issued to $4.50.
Share issue costs of $1,800,000 have been offset against the Ordinary share capital.
The Preference shares are non-participating and dividends on those are paid every
quarter on the last day of August, November, Fe
uary and May.
2
TSL pays Ordinary share dividends twice a year (ie an interim and final dividend) and also
offers its shareholders regular non-renounceable share rights issues. On the 15th
December 20X5 TSL offered a Dividend Reinvestment Plan for its Ordinary shareholders.
The plan is effective on any Ordinary share dividends paid after the 1st January 20X6 and
50% of ordinary shareholders accepted the offer. Shareholders are issued with fully paid
shares based on the value of the ASX share price on the day of the dividend declaration.
The following are the ASX closing share prices for TSL on the dates provided.
Date
Closing Share
Price $
Date
Closing Share
Price $
1/7/X5 2.12
21/1/X6 2.62
31/8/X XXXXXXXXXX/1/X6 2.89
12/9/X XXXXXXXXXX/2/X6 3.90
21/9/X XXXXXXXXXX/2/X6 3.95
1/10/X XXXXXXXXXX/3/X6 3.88
10/10/X XXXXXXXXXX/3/X6 4.00
2/11/X XXXXXXXXXX/4/X6 4.01
15/11/X XXXXXXXXXX/4/X6 3.97
30/11/X XXXXXXXXXX/4/X6 4.10
24/12/X XXXXXXXXXX/5/X6 4.12
2/1/X XXXXXXXXXX/5/X6 4.23
3
STAGE 3 JOURNAL ENTRIES 10 marks
On 1st April 20X7 the Board of Directors decided raise some further capital to assist in the
acquisition of another company. As a result it agreed to offer to Ordinary shareholders a non-
enounceable share rights issue of 1 share for every 11 held. The rights shares can be taken up at
92% of the ASX share price on the day of the announcement of the issue.
On the 30th April 20X7 the announcement was made and the offer was reasonably well received
with 80% of shareholders taking it up. Money from the offer was received on the 31st May 20X7.
REQUIRED
From the primary information together with the information provided above and building on the
information from Stages 1 and 2 of Part B of the assignment, record the general journal entries for
all transactions for the period 1st April 20X7 to 30th June 20X7.
If necessary round numbers to the nearest whole dollar or the nearest number of whole shares.
In addition to share prices previously supplied you also have the following information.
Date
Closing Share
Price $
Date
Closing Share
Price $
15/6/X6 $4.10
24/12/X6 $3.00
30/6/X6 $4.00 2/1/X7 $2.85
15/7/X6 $3.92 15/1/X7 $2.90
31/7/X6 $3.86 6/2/X7 $2.87
12/8/X6 $3.85 28/2/X7 $2.95
10/9/X6 $3.45 15/3/X7 $3.00
21/9/X6 $3.60 1/4/X7 $3.10
16/10/X6 $3.36 15/4/X7 $3.09
23/10/X6 $3.28 30/4/X7 $3.14
2/11/X6 $3.19 18/5/X7 $3.17
30/11/X6 $3.15 31/5/X7 $3.28
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ACCOUNTING METHOD II XXXXXXXXXXEQUITY
ASSIGNMENT PART B
STAGE 1 JOURNAL ENTRIES 8 marks
There are two series of transactions detailed below which need attention in addition to the primary
information provided.
1. In the Balance Sheet of PAL at 30/6/X4 there was provision for the payment of a dividend of
15 cents/share on the Ordinary shares. This was paid on the 30th September 20X4.
2. On 1st September 20X4 the Company Board decided to offer to Ordinary shareholders a
non-renounceable share rights issue of 1 share for every 10 held. The rights shares can be
taken up at 95% of the ASX share price on the day of the announcement of the issue.
On the 15th September the announcement was made and monies received on the 15th
October 20X4 from 75% of shareholder who accepted the offer.
REQUIRED
From the primary information together with the information provided above record the general
journal entries for all transactions for the period 1st July 20X4 to 31st October 20X4.
SOLUTION
A Provision for Dividend account FOR THE Ordinary shares would have been created in the Balance
Sheet at 30/6/20X4. The number of shares is ($23,046,000 + $3,000,000)/$3.00. The amount would
have been 8,682,000*$0.15.
Date Particulars DR CR
20X4 Preference Share dividend 101,250
Sept 30 Provision for Dividend 1,302,300
Cash at Bank 1,403,550
(Pay pref. dividend for 3 months
($6,750,000*6%*/4) and the provision
account for ordinary share dividends)
Date Particulars DR CR
Oct 15 Cash at Bank 2,010,426
Ordinary Share Capital 2,010,426
(Cash received on non-renounceable
ordinary share rights issues being
8,682,000/10*75%*$3.25*95%)
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ACCOUNTING METHOD II XXXXXXXXXXEQUITY
ASSIGNMENT PART B
STAGE 2 JOURNAL ENTRIES SUGGESTED SOLUTION 15 marks
Bonus Shares
After the Rights Issue there are now 9,847,500 shares issued of two groups (4,972,500 +
4,875,000). Apply 1:10 to those groups means issuing 497,250 and 487,500 ordinary shares.
Bonus share issue value = (497, XXXXXXXXXX,500)*$2.90
Date Particulars DR CR
20X7
Jan 15
General Reserve 2,855,775
Ordinary Share capital 2,855,775
(Issue of Bonus Ordinary shares on a
1:10 basis 2 $2.90/share.)
Date Particulars DR CR
20X7
Feb 28
Preference share dividend 937,500
Cash at Bank 937,500
(Pay preference share dividend =
$50,000,000 * 7.5%pa/4)
Interim Dividend
Total Shares after Bonus Issue = (4,972,500+497, XXXXXXXXXX,875,000+487,500)
Interim dividend total value = (5,469,750+5,362,500)*0.04 = $433,290
ENSURE THAT YOU CONTINUE TO TRACK THE SHARE GROUPS
Date Particulars DR CR
20X7
March 15
Ordinary share interim dividend 433,290
Cash at Bank 214,500
Ordinary Share Capital 218,790
(Paying interim dividend $0.04/share
on Ordinary shares)