QUESTION 14.

Suggested solution

(a)
GENERAL JOURNAL
Particulars Debit Credit
R R
Normal income tax expense – (P&L) 35 000
Income tax payable (Creditor - SARS) – (SFP) 35 000
(Provision for normal income tax expense for the current year.)
Profit and loss account– (P&L) 35 000
Normal income tax expense– (P&L) 35 000
(Closing journal entry)
Profit and loss account– (P&L) 65 000
Retained earnings– (SFP) 65 000
(Closing journal entry)
Preference dividend– (SFP) 7 000
Ordinary dividend– (SFP) 6 000
Dividends payable (Creditors) – (SFP) 13 000
(Provision for preference and ordinary dividends on date declared.)
Retained earnings– (SFP) 13 000
Preference dividend– (SFP) 7 000
Ordinary dividend– (SFP) 6 000
(Closing journal entries)

(b)
Retained earnings
Particulars Amount Particulars Amount
Preference dividend 7 000 Balance b/d 55 000
Ordinary dividend 6 000 Profit after tax 65 000
(Transferred from profit and loss
Balance c/f 107 000 account)
120 000 120 000
Balance b/d 107 000

Note:

The preference dividend will be declared before the ordinary dividend. Because the
preference shares are cumulative, the dividend will be calculated as follows:

20 000 x 10c x 3½ years (1 Jan 20x2 – 30 Jun 20x5) = R7 000