The following information is taken from the statement of financial position of C Limited at 1 September 2021. $ 5% Debentures (2024) 60000 Equity Ordinary share capital ($0.50) 240000 General reserve 36 000 Retained earnings 22000 During the year ended 31 August 2022: A final dividend payment of $12000 was made for the year ended 31 August 2021. An interim dividend payment of $0.02 per share was made for the year ended 31 August 2022. A transfer of $11000 was made to general reserve. At 31 August 2022 the company proposed a final dividend of $10000 for the year ended 31 August 2022. The revenue for the year ended 31 August 2022 was $310000 and the profit (before debenture interest) was $23000.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2022). The mark or mark type is shown in brackets.

1. [7] C Limited Statement of Changes in Equity for the year ended 31 August 2022
2. Details Share Capital $ General reserve $ Retained earnings $ Total $
3. On 1 September 2021 240 000 36 000 22 000 298 000 (1) row
4. Profit for the year 20 000 20 000 (1) row
5. Dividend paid (final) (12 000) (12 000) (1) row
6. Dividend paid (interim) (9 600)(1) (9 600)(1)OF
7. Transfer to general reserve 11 000 (11 000) (1) row
8. On 31 August 2022 240 000 47 000 9 400 296 400 (1) OF row
9. [4] 23 000 (1) / 296 400 (1) OF + 60 000 (1) X 100/1 = 6.45% (1) OF
10. [2] 20 000 / 310 000 X 100/1 (1) whole formula = 6.45% (1) OF
11. [2] Increase the gross margin (1)
12. Reduce expenses (1)
13. Increase other income (1)
14. Max (2)
15. [5] Option 1 - issue debentures
16. Annual interest will have to be paid (1)
17. Interest has to be paid irrespective of profit (1)
18. Are a long term liability/must be repaid (1)
19. Are paid before ordinary shareholders in event of winding up (1)
20. Debenture holders are not members of the company (1)
21. Debenture holders may require security/have claim on non-current assets in case of non-repayment (1)
22. Accept other valid points Max (2)
23. Option 2 - issue additional ordinary shares
24. Have to consider if all the extra shares can be sold (1)
25. Shareholders will expect to receive a dividend (1)
26. Share dividend is not fixed and may depend on the level of profits (1)
27. Last to be paid in event of winding up (1)
28. May dilute current shareholders control / Carry same voting rights as existing shareholders (1)
29. Accept other valid points Max (2)
30. Recommendation (1)