Dang Ltd had the following balances in its books after the calculation of the profit for the year ended 31 March 2012: Profit for the year (before debenture interest) $60 000 Issued and called up share capital: 100 000 6% $0.50 Preference shares 50 000 100 000 $1 Ordinary shares 100 000 7% Debentures 31 December 2020 200 000 General reserve 60 000 Retained profit 1 April 2011 21 000 Additional information The directors decided to: 1 transfer $25 000 to the general reserve 2 pay the preference share dividend 3 pay an ordinary share dividend of $0.10 per share.

Mark scheme

Marking points from the official mark scheme (May/June 2012). The mark or mark type is shown in brackets.

1. [8] (a) Dang Ltd Appropriation Account for the year ended 31 March 2012: Profit for the year (60000 - 14000) $46000 (1). Less Appropriations: Transfer to the general reserve $25000 (1). Dividends - Preference paid $3000 (1). Ordinary paid $10000 (1). Total Appropriations: $38000. Retained profit for the year $8000 (1of). Add retained profit brought forward (b/d) $21000 (1 + label). Retained profit carried forward (c/d) $29000 (1 + label).
2. [6] (b) Balance Sheet (extract) at 31 March 2012: Issued Share capital: 100 000 6% $0.50 Preference shares $50000 (1). 100 000 $1 Ordinary shares $100000 (1). Total Issued Share capital: $150000. Reserves: General reserve $85000 (1). Retained profit/earnings $29000 (1of + label). Total Reserves: $114000. Shareholders' funds/equity $264000 (1of).
3. [2] (c) Preference shares have fixed rate of dividend, ordinary shares have variable dividends (or depend on profits/may receive nothing). Preference shares receive dividend first, ordinary shares receive dividend last. Preference shareholders have no voting rights, ordinary shareholders do have voting rights. Preference shares receive payout first on winding up, ordinary shares receive payment last. (2 or 0)
4. [2] (d) Preference holders are owners/shareholders, debenture holders are long term loan creditors. Debenture holders paid interest, preference holders receive dividend. Debenture holders are guaranteed interest, preference may not receive dividend. Debenture holders are paid interest before preference receive dividend. Debenture interest is an expense, preference dividend is an appropriation of profit. (2 or 0)
5. [2] (e) Facilitates fair comparison of company's financial statements in different countries. To improve reliability of financial statements produced in different countries. To improve understanding of financial statements produced in different countries. (Reference must be made to international/world wide different countries) (2 or 0)