Question

Tem Ora Ltd supplied the following information on its shareholders’ equity as at

30 June 2015.

Tem Ora Ltd Balance Sheet as at 30 June 2015 (extract)

Shareholders’ equity	$	$
Capital (400,000 ordinary shares paid to $ 1.00)	400,000
Capital (100,000 7% preference shares paid to $2.00 each)	200,000
Retained earnings	165,000
Dividend equalisation reserve	150,000
Total shareholders’ equity		915,000

Additional information:

Profit after tax for the year ended 30 June 2016 was $250,000;

On 29 July 2015, buildings were revalued and increased in value by $335,000.

On 7 August 2015, a bonus share issue was made; shareholders were given one share for every eight that they held. The bonus shares were funded from the asset revaluation reserve.

On 25^th June 2016, directors declared a final dividend on ordinary shares of $0.07 per share.

A decision to transfer $80,000 to the dividend equalisation reserve was made on 30 June 2016.

Required:

For the financial year ending 30 June 2016, prepare journal entries to record the above decisions.

Answer 1

S no	Particulars	Debit	Credit
29-Jul-15	Building	335,000.00
	Asset Revaluation Surplus		335,000.00
7-Aug-15	Asset Revaluation Surplus	50,000.00
	Share Capital account		50,000.00
25-Jun-16	Dividends	31,500.00
	Dividends payable		31,500.00
30-Jun-16	Profit & Loss appropriation account	80,000.00
	Dividend equalization Reserve		80,000.00

Calculations and explanations:

Amount of bonus issue = (400,000 shares*$1)/8 = $50,000

No. of shares after bonus issue = 400,000+50,000 = 450,000. Thus total dividend amount = 450,000 shares*$0.07 per share

= $31,500