UNIVERSITY OF GHANA BUSINESS SCHOOL

DEPARTMENT OF ACCOUNTING

UGBS 208: INTRODUCTION TO FINANCIAL ACCOUNTING

2ND SEMESTER 2019/2020 ACADEMIC YEAR
TUTORIAL SET 4 – ACCOUNTING FOR COMPANIES – ISSUE OF SHARES

Question 1
Bono-East Company limited was formed on January, 2019 with 200,000,000 equity shares of no
par value. The directors offered 100,000,000 shares for sale to the public under the following
terms:
Application GH¢ 8.00
Allotment GH¢ 7.00
1st Call GH¢ 3.00
2nd Call GH¢ 2.00
Applications were received for 180,000,000 shares and the directors made the issues as follows:

Application for the first 40,000,000 shares were allotted in full

Next applications for the 60,000,000 shares received two-thirds of

application Next 20,000,000 shares applicants had 60% of the applicants

Next 20,000,000 shares applicants were allotted 40% of

application. The remaining applications were rejected

All monies were duly received except Sunyani who failed to pay on both first and second calls.
His 750shares were reissued to Goaso at GH¢25 each. Overpayments and payments by
unsuccessful applications were dully dealt with (i.e., excess application monies were refunded
to unsuccessful applicants or set off against allotment for partially successful applications).

Required:
Prepare the ledger entries to give effect to the above transactions and prepare the
relevant statement of financial position extracts.

Theodora, Belinda, Priscilla, Graham, & Fred 1

Question 2
North-East Company limited after incorporation invited application for 60,000 equity share
payable on the following terms:

GH¢
31st January, 2019 Payable on application 2.50
th
14 February, 2019 Payable on allotment 2.00
28th February, 2019 Payable on first call 1.50
th
13 March, 2019 Payable on second call 1.00
7.00

Applications were received for 87,000 shares. The underwriters in consultations with
the directors, decided as follows:

1. To reject applications for 7,000 shares for not meeting the requirement

2. To give full allotment to a strategic foreign investor who applied for 20,000 shares.

3. To allot to a local institutional investor 30,000 shares out of the 40,000 shares applied for.

4. To allot the remaining applications pro-rata.

Surplus applications monies are to be held to reduce the amount payable on allotment. The calls
were made and paid in full by members with the exception of Mr. Tamale, who failed to pay the
first and second calls on the 1,400 shares allotted to him. After the requisite action, the shares
were forfeited by the directors on 13th March, 2019. On the 15th of March, 2019, they were re-
issued to Mr. Damongo at GH¢6.00 per share payable in full. Mr. Damongo paid for the shares
on the same day.

Required:
Show how the transactions will be recorded in the company’s ledgers and the necessary journal
entries and show the relevant statement of financial position extracts.

Question 3
Oti-Volta Company Limited registered their business in 2017 with 50,000 ordinary shares.
On 3rd February, 2017, the company issued 30,000 shares at GH¢ 5.00 each to be subscribed
to by the general public, and payment terms are as follows;

On application 50%

On allotment 35%

On 1st call 15%

Theodora, Belinda, Priscilla, Graham, & Fred 2

The company received subscriptions for 45,000 shares. After deliberations by management and
directors, the following was agreed:

(i) to reject the subscription of 5,000 shares for late application

(ii) to fully allot to a local institutional investor the 10,000shares it applied for
(iii) to share the remaining shares on pro-rata basis.

All the members paid up all amounts in full on the stipulated dates except for Ho who failed to
pay the call money for the 1,200 shares that was allotted to her. This was re-issued to Dambai a
week after for 3.50per share and he immediately paid the amount in full’

You are required to show the journal entries for all transactions, make ledger entries for all
transactions and provide a statement of financial position extract as at that date.

Question 4
Western-North Company was incorporated in 2017 with an authorised capital of 500,000
ordinary shares of no par value. At a meeting of the board of directors, a resolution was passed to
issue 200,000 of the ordinary shares under the following terms:
15 September 2017 On application GH¢5.50 per share
10 October 2017 On allotment GH¢3.50 per share
20 November 2017 Balance due on call GH¢1.00 per share

The responses to the share issue were encouraging and grouped as follows:

Category Number of No. of share No. of shares

Applicants applied per allotted to each
applicant applicant
A 40 2,000 2,000
B 20 10,000 4,000
C 10 5,000 4,000

The board of directors and the subscribers agreed that amounts overpaid on application were
to be retained by the company and used in setting off further sums due on the issue. Any
further surplus contributions were refunded on 12 December 2017.

Mr. Takoradi, who subscribed for 5,000 shares, was unable to meet the call amount due on his
shares. On 20 December 2017, the directors forfeited the share allotted to him. All other
applicants paid the prescribed amount on the due dates in cash.

The directors on 28 December 2017, re-issued the forfeited shares at GH¢20 per share to Miss
Sefwi-Wiaso and received a full cash settlement of the issue price.

Theodora, Belinda, Priscilla, Graham, & Fred 3

You are required to:
i) Pass journal entries to record the above transactions.
ii) Draw up an extract of the statement of financial position as at 31st December 2017.

Question 5

Our-Ghana Company Ltd, a merchandise business dealing in foot wares, was incorporated on
1st March 2018 with an authorized share capital of 100,000,000 ordinary shares of no par
value, out of which 20,000,000 shares were issued for GH¢160,000,000. On 1st August, 2018
the directors resolved to issue a further 50,000,000 ordinary shares at GH¢15 each. The terms
of issue were as follows:

01/09/18 Application 40%

20/09/18 Allotment 30%

30/10/18 1st Call 20%

15/11/18 2nd Call 10%

Applications were received for 65,000,000 ordinary shares of which 3,500,000 were rejected.
The rest were allocated on the due dates on pro rata basis. Unsuccessful applicants were
repaid on the same day.

The calls were duly paid except Techiman, a holder of 750,000 shares, paid her final call with
the first call. In addition, Nalerigu failed to pay his 900,000 shares on the final call. His
shares were forfeited on 15th December, 2018 and re-issued to Savannah at GH¢25 per share
on 20th December, 2018.

You are required to:

a) prepare the relevant accounts to record the above transactions
b) Draw up the statement of financial position as at 31st December, 2018 on the
assumption that 60% of the proceeds from all issues was expended on factory premises
and 30% on the acquisition of stocks.

Theodora, Belinda, Priscilla, Graham, & Fred 4