The following information is available for B Limited at 31 August 2018. B Limited Statement of Changes in Equity for the year ended 31 August 2018 Ordinary Shares General Reserve Retained Earnings Total $ $ $ $ Balance at 1 September 2017 150000 65000 85000 300000 Profit for the year 75000 75000 Transfer to general reserve 25000 (25000) – Dividend paid (ordinary shares) (21000) (21000) Balance at 31 August 2018 150000 90000 114000 354000 Other balances at 31 August 2018 Trade payables $73000 6% Debentures (repayable 2024) $50000 Debenture interest owing $4800 General expenses owing $5300 5% Bank loan (repayable 31 May 2019) $40000 Additional information B Limited had issued 300000 ordinary shares.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2018). The mark or mark type is shown in brackets.

1. [2] (a) Debentures are a loan to the company. (1) They are not part of the equity of the company. (1)
2. [2] (b) $21000 / 300000 shares (1) = $0.07 (7 cents) per share (1)
3. [6] (c) B Limited Extract from the Statement of Financial Position at 31 August 2018: Equity and reserves: Ordinary shares of $0.50 each 150 000 (1) General reserve 90 000 Retained earnings 114 000 Total Equity 354 000 (1) Non-current liabilities: 6% Debenture 50 000 (1) Current liabilities: 5% Bank loan (repayable 31 May 2019) 40 000 (1) Trade payables 73 000 Other payables: (4 800 + 5300) 10 100 (1) Total Current Liabilities 123 100 Total Capital and Liabilities 527 100
4. [2] (d) Retain cash in the business (1) / For expansion (1) / Purchase non-current assets (1) / Retain working capital (1) / To indicate that the general reserve is not reflected in liquid assets. (1) / Accept other valid points. Max 2.
5. [4] (e) Ordinary shares: Variable percentage of dividend / Paid dividend after preference shares / Last to receive capital in liquidation Preference shares: Maximum fixed rate of dividend / Paid dividend before ordinary shares / Receive capital before ordinary shares in liquidation Two differences (1) mark for ordinary shares (1) mark for preference shares × 2 / Accept other valid points.
6. [2] (f) If there is insufficient profit to meet the full dividend on a cumulative preference share the shortfall can be carried forward to the following year. (1) If there is insufficient profit to meet the full dividend on a non-cumulative share the unpaid proportion cannot be carried forward to a subsequent year and will be lost. (1)
7. [2] (g) Ordinary share dividend paid: Statement of changes in equity (✔) Director's salary: Income statement (✔) Other receivables: Statement of financial position (✔)