Accounting for Companies - Class Example

SNE Investments Ltd is a company that provides advisory services on corporate mergers and
acquisitions. The company’s financial year-end is 31 March.

The company’s authorized share capital comprises:

- 1 000 000 ordinary shares

- 500 000 10% cumulative non-redeemable preference shares

As at 31 March 2017, the following balances (among others) appeared on the trial balance:
- Ordinary Share Capital: R 1 800 000 (previously issued at R4.5 each)

- Preference Share Capital: R 2 500 000 (previously issued at R10)

- Retained Earnings: R 7 895 680

- Revaluation Surplus: R 1 350 000

DEBENTURE ISSUE

The trial balance as at 31 March 2017 also showed a balance relating to the issue of 15 000:
6% Debentures of R200 each. These debentures were issued at a 3% discount on 1 April 2016 and
are redeemable on 31 March 2020. Interest on the debentures is payable annually on 31 March.

RIGHTS ISSUE

On 1 September 2017; the company announced a rights offer of 1 share for every 8 shares held, at
R15 per share, to its existing ordinary shareholders. The closing date for applications was 25
October 2017 and all the shares were allotted on 15 November 2017. The rights offer was
underwritten by Themba Investment Bank for 1.5% underwriter’s commission. The underwriter’s
account was settled on 30 October 2017.

By 25 October 2017, the company had received applications for 45 500 shares and had paid for
R25 500 worth of expenses (excluding underwriter’s commission) directly related to the rights
issue.

SHARE ISSUE

On 1 December 2017, the company offered a further 150 000 10% non-redeemable preference
shares to the public at R10 per share. This share issue was underwritten by Lego Merchant Bank at
a fee of 0.75%. These shares were applied for in full by 30 December 2017 and were allotted on
2 January 2018. Share issue expenses relating to the issue of the preference shares amounted to
R48 000.
YEAR-END RESOLUTIONS

On 25 March 2018, the directors declared a dividend of 85 cents per ordinary share; the directors
also declared a preference dividend on the same date.

Machinery with a carrying amount of R350 000 as at 31 March 2018, was valued at R 480 000 by
an independent valuer on the same date. The directors resolved to revalue the machinery to reflect
its value as determined by the expert, according to the revaluation model applicable to machinery.

Share issue costs are to be written off against share capital to have the minimum effect of
distributable reserves.

The company’s profit before finance costs and taxation for the year ended 31 March 2018 was
R2 450 500, and the taxable income for the same period was R1 800 000.

You are required to:

1. Prepare all the journal entries relating to the rights offer and the share issue for the year
ended 31 March 2018 (showing all relevant dates); narrations are not required.

2. Prepare the statement of profit and loss and other comprehensive income for the year ended
31 March 2018.

3. Prepare the statement of changes in equity for the year ended 31 March 2018.

Show ALL your workings

Comparative figures are not required