Principles of Accounts
Limited Company Accounts
Questions and Answers
QUESTION 1
The Karma Company, a public limited liability company, was formed with an authorized capital
of $3 000 000 made up of 2 000 000 ordinary shares at $1 each and 100 000 8% preference
shares at $10 each.
On December 1, 2014, the company issued 1 500 000 ordinary shares for $1 each and 50 000 8%
preference shares at $10 each. The issue was fully subscribed and all cash received.
(i) Prepare journal entries, with appropriate narratives, to record the share issue.
Answer:
Karma Company
General Journal
Date Details Debit Credit
2014 Cash $ 2,000,000
Ordinary Share Capital $ 1,500,000
Preference Share Capital $ 500,000
$ 2,000,000 $ 2,000,000
(ii) Calculate the amount of cash that would have been received by the company if all the
8% Preference Shares together with the 1 500 000 ordinary shares were issued and
fully subscribed.
Answer:
100,000 8% preference share at $10 each
100,000 x $10= $ 1,000,000
1,500,000 ordinary shares at $1 each
1,500,000 x $1 = $1,500,000
, Therefore, amount of cash received is
$1,000,000 + $1,500,000 = $2,500,000
(iii) Calculate the total value of Karma Company’s issued share capital.
Answer:
Ordinary Share Capital + Preference Share Capital = Total issued share capital
$1,500,000 + $500,000 = $2,000,000
(iv) Distinguish between authorized capital and issued capital.
Answer:
Authorized Capital is the maximum amount of shares a company can share based on the law. Issued
Capital is the amount of shares that a company sells to shareholders.
QUESTION 2
You are provided with the following information relating to Ling Company Limited, for the
current year.
1. Capital reserve 25 000
2. Gross profit 900 000
3. Interim dividend paid 15 000
4. Final dividend proposed 35 000
5. Director’s remuneration 50 000
6. Wages and salaries 160 000
7. Debenture interest 10 000
8. Depreciation 13 000
9. Sundry expenses 225 000
10. Unappropriated profit brought forward 68 000
Prepare for the company a Profit and Loss account and Appropriation account for the current
year.
Answer:
Ling Company Limited
Profit and Loss Appropriation Account for the current year
Details $ $
Gross Profit 900,000
Less Expenses
Director`s Remuneration 50,000
Limited Company Accounts
Questions and Answers
QUESTION 1
The Karma Company, a public limited liability company, was formed with an authorized capital
of $3 000 000 made up of 2 000 000 ordinary shares at $1 each and 100 000 8% preference
shares at $10 each.
On December 1, 2014, the company issued 1 500 000 ordinary shares for $1 each and 50 000 8%
preference shares at $10 each. The issue was fully subscribed and all cash received.
(i) Prepare journal entries, with appropriate narratives, to record the share issue.
Answer:
Karma Company
General Journal
Date Details Debit Credit
2014 Cash $ 2,000,000
Ordinary Share Capital $ 1,500,000
Preference Share Capital $ 500,000
$ 2,000,000 $ 2,000,000
(ii) Calculate the amount of cash that would have been received by the company if all the
8% Preference Shares together with the 1 500 000 ordinary shares were issued and
fully subscribed.
Answer:
100,000 8% preference share at $10 each
100,000 x $10= $ 1,000,000
1,500,000 ordinary shares at $1 each
1,500,000 x $1 = $1,500,000
, Therefore, amount of cash received is
$1,000,000 + $1,500,000 = $2,500,000
(iii) Calculate the total value of Karma Company’s issued share capital.
Answer:
Ordinary Share Capital + Preference Share Capital = Total issued share capital
$1,500,000 + $500,000 = $2,000,000
(iv) Distinguish between authorized capital and issued capital.
Answer:
Authorized Capital is the maximum amount of shares a company can share based on the law. Issued
Capital is the amount of shares that a company sells to shareholders.
QUESTION 2
You are provided with the following information relating to Ling Company Limited, for the
current year.
1. Capital reserve 25 000
2. Gross profit 900 000
3. Interim dividend paid 15 000
4. Final dividend proposed 35 000
5. Director’s remuneration 50 000
6. Wages and salaries 160 000
7. Debenture interest 10 000
8. Depreciation 13 000
9. Sundry expenses 225 000
10. Unappropriated profit brought forward 68 000
Prepare for the company a Profit and Loss account and Appropriation account for the current
year.
Answer:
Ling Company Limited
Profit and Loss Appropriation Account for the current year
Details $ $
Gross Profit 900,000
Less Expenses
Director`s Remuneration 50,000
