FR – L2 – Q55 – Financial Instruments

Calculate capital, reserves, and liabilities for Jordana PLC after share issues and preference share transactions in Year 1.

Question

On 1 January Year 1 Jordana PLC has the following capital and reserves.

Equity	GH₵
Share capital (1 million ordinary shares)	1,200,000
Retained earnings	5,670,300
	6,870,300

During Year 1 the following transactions took place.

1 January: An issue of GH₵100,000 8% GH₵1 redeemable preference shares at a premium of 60%. Issue costs are GH₵2,237. Redemption is at 100% premium on 31 December Year 5. The effective rate of interest is 9.5%.
31 March: An issue of 300,000 ordinary shares at a price of GH₵1.30 per share. Issue costs, net of tax benefit, were GH₵20,000.
30 June: A 1 for 4 bonus issue of ordinary shares.
Profit for the year, before accounting for the above, was GH₵508,500. The dividends on the redeemable preference shares have been charged to retained earnings.

Required
Set out capital and reserves and liabilities resulting from the above on 31 December Year 1.

Answer

Capital and reserves
Share capital (W2) GH₵1,895,000
Retained earnings GH₵5,791,812
Liabilities (W5) GH₵164,751

Workings
(1) Profit for the year

(2) Ordinary share capital

(3) Bonus issue

(4) Retained earnings

	GH₵
At 1 January	5,670,300
Add: Profit for the year (W1)	493,512
Add back: Preference dividends charged to retained earnings (W5)	8,000
Bonus issue on 30 June	(325,000)
	5,791,812

(5) Redeemable preference shares

	GH₵
Liability at beginning of year	157,763
Year 1 ((100,000 × GH₵1.60) – 2,237))
Finance charge at 9.5%	14,988
Interest paid at 4%	(8,000)
Liability at end of year	164,751