FINANCIAL ACCOUNTING 178

CLASS EXERCISE: DIVIDENDS - SOLUTION

EXERCISE 1:

If the preference shares are non-cumulative?

(a) R30 000 (200 000 x 15c declaration CY)

(b)
1/1/2013 Dr Non-Cumulative preference dividend (SCE) 30 000
Cr Dividend liability (SFP) 30 000
{200 000 x 15c}

30/1/2013 Dr Dividend liability (SFP) 30 000

Cr Bank (SFP) 30 000

30/06/2013 Dr Non-Cumulative preference dividend (SCE) 10 000

Cr Dividend liability (SFP) 10 000
{200 000 x 5c}

30/06/2013 Dr Retained earnings (SCE) 40 000

Cr Non-cumulative preference dividend (SCE) 40 000

If the preference shares are cumulative?

(a) R80 000 (200 000 x 15c x 1 declaration in arrears + 200 000 x 5c x 2 declarations in
arrears + 200 000 x 15c declaration CY)

(b)
1/1/2013 Dr Cumulative preference dividend (SCE) 80 000
Cr Dividend liability (SFP) 80 000

30/1/2013 Dr Dividend liability (SFP) 80 000

Cr Bank (SFP) 80 000

30/06/2013 Dr Cumulative preference dividend (SCE) 10 000

Cr Dividend liability (SFP) 10 000
{200 000 x 5c}

30/06/2013 Dr Retained earnings (SCE) 90 000

Cr Cumulative preference dividend (SCE) 90 000
EXERCISE 2:

30/06/2013 Dr Cumulative preference dividend (SCE) 4 000

Cr Dividend liability (SFP) 4 000
{30 000 x 10c} + {20 000 x 10c x 6/12}
OR
{30 000 x 10c x 6/12} + {50 000 x 10c x 6/12}

30/06/2013 Dr Retained earnings (SCE) 4 000

Cr Cumulative preference dividend (SCE) 4 000
Closing entry for dividends declared

EXERCISE 3:

(a)

1/1/2013 Dr Cumulative preference dividend (SCE) 16 000

Cr Dividend liability (SFP) 16 000
{200 000 x 8c}

30/1/2013 Dr Dividend liability (SFP) 16 000

Cr Bank (SFP) 16 000

30/06/2013 Dr Cumulative preference dividend (SCE) 14 000

Cr Dividend liability (SFP) 14 000
{200 000 x 2c} + {200 000 x 5c}

30/06/2013 Dr Retained earnings (SCE) 30 000

Cr Cumulative preference dividend (SCE) 30 000

(b)
Cumulative preference dividends not recognised: 200 000 x 5c = 10 000
EXERCISE 4:

(a)

31/12/2012 Dr Cumulative preference dividend (SCE) 6 000

Cr Dividend liability (SFP) 6 000
{30 000 x 10c x 1 declaration in arrears}
+ {30 000 x 10c declaration CY}

31/12/2012 Dr Ordinary dividend (SCE) 140 000

Cr Dividend liability (SFP) 140 000
{70 000 x R2}

30/06/2013 Dr Cumulative preference dividend (SCE) 4 333

Cr Dividend liability (SFP) 4 333
{30 000 x 10c}
+ {20 000 x 10c x 4/6}
OR
{30 000 x 10c x 2/6}
+ {50 000 x 10c x 4/6}

30/06/2013 Dr Ordinary dividend (SCE) 80 000

Cr Dividend liability (SFP) 80 000
{(70 000 + 10 000) x R1}

Closing entries for dividends declared on 31 December 2012:

30/06/2013 Dr Retained earnings (SCE) 6 000
Cr Cumulative preference dividend (SCE) 6 000
{RE: 120 000 – 6 000 = 114 000}

30/06/2013 Dr Retained earnings (SCE) 114 000

Dr Revaluation surplus (SCE) 26 000
Cr Ordinary dividend (SCE) 140 000
{RE: 120 000 – 6 000 = 114 000 available}

Closing entries for dividends declared on 30 June 2013:

30/06/2013 Dr Retained earnings (SCE) 4 333
Cr Cumulative preference dividend (SCE) 4 333
{RE: 120 000 – 6 000 – 114 000 + 90 000 = 90 000 available}

30/06/2013 Dr Retained earnings (SCE) 80 000

Cr Ordinary dividend (SCE) 80 000
{RE: 120 000 – 6 000 – 114 000 + 90 000 – 4 333 = 85 667}
(b)

Expert Limited
Statement of changes in equity for the year ended 30 June 2013

Ordinary share Preference Retained Revaluation Total

capital share capital earnings surplus

Balance at 1 July 2012 140 000 60 000 120 000 50 000 370 000
Preference shares issued 40 000 40 000
Ordinary shares issued 20 000 20 000
Total comprehensive income for year: 90 000 0 90 000
Profit for the year 90 000 90 000
Other comprehensive income for the year 0 0
Preference dividends (10 333) (10 333)
Ordinary dividends (194 000) (26 000) (220 000)
Balance at 30 June 2013 160 000 100 000 5 667 24 000 289 667
Expert Limited
Notes to the financial statements for the year ended 30 June 2013

1. Accounting policy

The financial statements are prepared on the historic cost basis, except where indicated
otherwise, and according to International Financial Reporting Standards. The accounting
policy is in agreement with the policy followed in the previous year and is as follows:

Dividend distributions
Dividend distributions to company shareholders are recognised as a liability in the
financial statements in the period in which the dividends are authorised by the directors
and declared.

11. Share capital

Authorised
500 000 ordinary shares
100 000 cumulative preference shares

Issued 2013
80 000 ordinary shares 160 000
50 000 cumulative preference shares 100 000
260 000
Reconciliation of number of shares
Ordinary Cumulative
shares preference shares
Balance at 1 July 2012 70 000 30 000
Issued 10 000 20 000
Balance at 30 June 2013 80 000 50 000

Each cumulative preference share is entitled to a dividend of R0.20 per share per annum.

Ordinary and cumulative preference shares were issued during the year for a compensation
of R60 000 cash.

22. Dividends 2013

Ordinary dividends declared 220 000

Preference dividends declared 10 333

Ordinary dividend per share R3

(R140 000/70 000 + R80 000/80 000)

Cumulative preference dividend per share 29c

(R6 000/30 000 + R4 333/50 000)
Alternative: R6 000/30 000 + R4 333/(30 000 + 4/6 x 20 000) = R0.30