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9706 · 1.5.4

Limited companies — practice questions

Practice and worked examples for 9706 Limited companies. Short previews only — attempt the full question in MarkScheme against the official scheme.

Worked example 1

Company issued 200,000 ordinary shares of $0.50 at $1.20 each. Retained earnings opening $40,000. Profit for year $55,000. Dividend paid $15,000. Show the closing equity section of the Statement of Financial Position.

Show solution outline

Calculations:

1. Ordinary Share Capital: 200,000 shares × $0.50 (nominal value) = $100,000

2. Share Premium: Premium per share = $1.20 (issue price) - $0.50 (nominal value) = $0.70 Total Share Premium = 200,000 shares × $0.70 = $140,000

3. Closing Retained Earnings: Opening Balance: $40,000 Add: Profit for the year: $55,000 Less: Dividends paid: ($15,000) Closing Balance = $80,000

Equity Section of the Statement of Financial Position:

Equity Ordinary Share Capital (200,000 shares of $0.50 each) ..... $100,000 Share Premium ..... $140,000 Retained Earnings ..... $80,000 Total Equity ..... $320,000

Worked example 2

Beta PLC had the following equity balances at 1 Jan 2023:

  • Ordinary Share Capital ($1 shares): $400,000
  • Share Premium: $80,000
  • Retained Earnings: $115,000

During the year ended 31 Dec 2023:

  1. Profit for the year was $95,000.
  2. On 1 May, the company issued 100,000 new $1 ordinary shares for $1.60 each.
  3. An interim dividend of $0.04 per share was paid on 1 September on all shares in issue at that date.

Prepare the Statement of Changes in Equity for the year ended 31 December 2023.

Show solution outline

Workings:

1. Share Issue (1 May):

  • Proceeds to Ordinary Share Capital (nominal): 100,000 shares × $1.00 = $100,000
  • Proceeds to Share Premium: 100,000 shares × ($1.60 - $1.00) = $60,000

2. Interim Dividend (1 Sep):

  • Total shares in issue at 1 Sep = 400,000 (opening) + 100,000 (new issue) = 500,000 shares.
  • Dividend paid = 500,000 shares × $0.04 = $20,000. This reduces Retained Earnings.

Statement of Changes in Equity for the year ended 31 December 2023

Ordinary Share Capital ($)Share Premium ($)Retained Earnings ($)Total Equity ($)
Balance at 1 Jan 2023400,00080,000115,000595,000
Profit for the year95,00095,000
Issue of share capital100,00060,000160,000
Interim dividend paid(20,000)(20,000)
Balance at 31 Dec 2023500,000140,000190,000830,000
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