O-LevelAccountingPreparation of financial statements7707/22 · Oct/Nov 2019 · Q320 Marks

ABC Limited has ordinary share capital consisting of 150000 shares of $1 each. The following is an extract from the statement of changes in equity for ABC Limited for the year ended 31 August 2019. ABC Limited Statement of Changes in Equity for the year ended 31 August 2019 Ordinary share capital General reserve Retained earnings Total $ $ $ $ Balance 1 September 2018 150000 25000 56000 ? Profit for the year 32000 32000 Interim dividend for the year (3000) (3000) Final dividend for the year (4500) (4500) Transfer to general reserve 20000 (20000) Balance 31 August 2019 ? ? ? ? Additional balances at 31 August 2019 $ Trade payables 17500 Current assets 72500 Other payables 3000 5% Debentures (repayable 2025) 50000 Non-current assets 280 000 4% Bank loan (repayable 2022) 20000 Bank overdraft 6500 REQUIRED

(a)State the difference between called-up share capital and paid-up share capital.[2]
(b)State three differences between debentures and ordinary shares. 1 2 3[6]
(c)(i)Calculate the total: equity of ABC Limited on 1 September 2018[1]
(c)(ii)Calculate the total: dividend paid on ordinary shares in cents per share.[2]
(d)State one possible reason why ABC Limited would make a transfer to the general reserve.[1]
(e)Prepare an extract from the statement of financial position at 31 August 2019 to show the equity and liabilities. ABC Limited Extract from the Statement of Financial Position at 31 August 2019 $ $[8]

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2019). The mark or mark type is shown in brackets.

[1] Called-up share capital is the total amount requested from the shareholders.
[1] Paid-up share capital is that part of the called-up capital for which the company has actually received cash from the shareholders.
[2] Debentures are long term lenders, Ordinary shares are owners.
[2] Debentures have no right to vote, Ordinary shares have the right to vote at meetings.
[2] Debentures have a fixed rate of interest, Ordinary shares have a variable dividend.
[1] Debentures have a preferential claim in winding up, Ordinary shares have the last call on assets in winding up.
[1] Accept other valid differences
[1] 150 000 + 25 000 + 56 000 = 231 000
[1] (3000+4500) / 150000 = 0.05
[1] 5 ($0.05) cents per ordinary share
[1] Retain cash in the business
[1] Fund expansion/future growth
[1] Fund future dividends
[1] Contingency
[1] Improve working capital
[1] Accept other valid points Max 1
[1] Equity and liabilities
[1] Ordinary shares 150 000
[1] General reserve 45 000
[1] Retained earnings 60 500
[1] Total equity 255 500 (OF)
[1] Non-current liabilities
[1] 5% Debentures 50 000
[1] 4% Bank loan 20 000
[1] Total non-current liabilities 70 000
[1] Current liabilities
[1] Trade payables 17 500
[1] Other payables 3 000
[1] Bank overdraft 6 500
[1] Total current liabilities 27 000
[1] Total equity and liabilities 352 500 (OF)

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