QUESTION 1

You have recently been appointed as the accountant of Lemon Drizzle Limited. The entity has an
authorized share capital of:
250 000 ordinary shares of no par value; and
500 000 15% preference shares of no par value (redeemable at the option of the company)
An extract of the Trial Balance at 30 June 2013 indicate the following balances:

Ordinary share capital (200 000 shares issued at R1) 200 000
15% Preference share capital (300 000 shares, issued at R4) 1 200 000
Retained Earnings 490 000
Current tax payable: Income tax -
Current tax payable: Dividends tax -
Additional Information:
1. The following tax rates are applicable:
Income tax, 28% of taxable income.
Dividends tax 15%.
2. Profit before tax for the financial year ended 30 June 2013, amounts to R280 000. The profit
of R280 000 does not include any of the below mentioned adjustments given under additional
information number 3.
3. At year end, 30 June 2013, you still need to account for the following transactions as indicated
on the following dates:
1/08/2012 The company decided to make a rights issue and issued 1 ordinary share for every 1
ordinary share held. The shares were issued as follows:
At R1 per share. (The current market price was R2 per share.)
All shares were allotted.
R4 000 share issue costs were paid. (These costs are not deductible for the calculation of
the taxable income.)
31/12/2012 A first provisional tax payment of R34 000 was made to the tax authorities.
28/02/2013 It was decided to buy-back 50 000 ordinary shares at a price of R1,50
per share.
To fund the share buy-back, the company will issue preference shares at an issue price of R4 per
share.
30/06/2013 A second provisional tax payment of R34 000 was made to the tax authorities.
The accountant provided for the current tax for the year ended 30 June 2013.
30/06/2013 A preference dividend of R187 500 (correctly calculated), was declared and paid on
this date.
An ordinary dividend of R0.40 per share was declared to all outstanding ordinary shareholders
(excluding treasury shares) registered on 30 June 2013. Payment of the dividend will only take
place on 15 July 2013.
REQUIRED:
1. Provide the general journal entries for the transactions that took place on the 1/08/2012 and
the 28/02/2013.
Note:
Only transactions that happened on these two dates are required. Narrations and closing transfer
entries are not required. (9)
2. Show the following general ledger accounts for the financial year ended 30 June 2013:
- Current tax payable: Income tax
Balance the account on 30 June 2013. (4)
3. Prepare the statement of changes in equity for the year ended 30 June 2013. (11)
4. Show the following notes to the financial statements for the year ended 30 June 2013:
4.1 Income Tax Expense.
4.2 Share Capital.
Note: No comparatives are required. (11