TUTORIAL: EQUITY PART 1

Question 1 (MMLS)

Delima Bhd was formed on 1 January 2008. It is authorized to issue 20,000,000 shares of RM5
par value, 10% preferred shares and 125,000,000 shares of RM3 par value ordinary shares. On
January 1, 2018, the ledger contained the following stockholders’ equity balances.

Preferred shares - 10,000,000 shares RM10,000,000

Share premium – Preferred shares 75,000,000
Ordinary shares – 70,000,000 shares 210,000,000
Share premium – Ordinary shares 700,000,000
Retained earnings 300,000,000

During 2018, the following transaction occurred.

Feb 1 Issued 2,000,000 shares of preferred shares for land having a fair market value
of RM12,500,000.
Mar 1 Issued 1,000,000 of preferred shares for cash at RM6.50 per share.
July 1 Issued 16,000,000 shares of common share for cash at RM7 per share.
Sept 1 Issued 400,000 shares of preferred share for a patent. The asking price of the
patent was RM30,000,000. Market value were preferred share RM7.
Dec 1 Issued 8,000,000 shares of ordinary shares for cash at RM7.50 per share.
Dec 31 Net income for the year was RM260,000. No dividends were declared.

Required:

a. Show the journal entries for the above transactions.

b. Prepare a shareholders’ equity section as at 31 December 2018.

Answer
a)
Date Accounts Title Debit (RM) Credit (RM)
2008
Feb 1 Land 12,500,000
Preferred Shares 10,000,000
Share Premium (12,500,000 –
10,000,000) 2,500,000
Mar 1 Cash (10,000,000 × 6.5) 65,000,000
Preferred Shares 50,000,000
Share Premium (10,000,000 ×
(6.5- 5)) 15,000,000
July 1 Cash (16,000,000 × 7) 112,000,000
Ordinary shares (16,000,000 ×3) 48,000,000
Share Premium (16,000,000 × 4) 64,000,000
Sept 1 Patent 2,800,000
Preferred Shares 2,000,000
 Share Premium 800,000
Dec 31 Cash (8,000,000 × 7.5) 6,000,000
Common shares 2,400,000
Share premium 3,600,000
b)
Date Accounts Title Debit (RM) Credit (RM)
Dec 31 Income Summary 260,000
Retained Earnings 260,000

Question 1 (Oxford textbook, page 267)

Date Account Title Debit (RM) Credit (RM)

2013 Cash trust (80,000,000 × 0.5)
Sept 1 *0.5 = 3.5 – 3.0 40,000,000
Application 40,000,000
Oct 1 Cash 25,300,000
Allotment (50,000,000 × 0.5) 25,000,000
Cash in advance (100,000 × 3) 300,000
Application (50,000,000 × 0.5) 25,000,000
Allotment 25,000,000
Share capital (50,000,000 × 0.8)
*0.8 is par value 40,000,000
Share premium (50,000,000 × 0.2) 10,000,000
Cash 25,000,000
Application (30,000,000 × 0.5) 15,000,000
Cash trust 40,000,000
Cash 2,000,000
Preference share 2,000,000
Dec 1 First and final call (50,000,000 × 3) 150,000,000
Share premium 150,000,000
Call in arrears (150,000 × 3) 450,000
Cash in advance 300,000
Cash received 149,250,000
First and final call 150,000,000
2014
Feb 1 Forfeited (150,000 × 3) 450,000
Call in arrears 450,000
Ordinary shares (150,000 × 0.8) 120,000
Forfeited arrears 120,000
Mar1 Cash (150,000 × 3.5) 525,000
Share Premium (150,000 × 0.5) 75,000
Share Capital (150,000 × 0.8) 120,000
Forfeited shares 330,000