19. Company accounting

Question 1

State two features of company

Answer 1

Any two

1. Minimum one shareholder; no maximum no. of shareholders.
2. Liability is limited
3. Capital is in the form of shares
4. Run by board of directors

Question 2

Explain the term ‘share’

Answer 2

Share refers to unit of ownership in a company.

Question 3

What is dividend?

Answer 3

Dividend is the portion of profits given to the shareholders.

Question 4

What is retained earnings?

Answer 4

Retained earnings refer to undistributed profits of a company.

Question 5

A company has 500 000 ordinary shares issued at $2 each. What is the issued share capital?

Answer 5

500 000 X $2 = $1 000 000

Question 6

A company issued share capital is $600 000 comprising ordinary shares issued at $1.20 each. How many issued shares are there?

Answer 6

600 000 / 1.20 = 500 000 ordinary shares

Question 7

A company has 200 000 ordinary shares issued at $2 each. Dividends of $0.10 was declared. What is the dividends declared?

Answer 7

200 000 X 0.1 = $20 000

Question 8

A company issued share capital comprises 400 000 ordinary shares of $1.50 each. On 30 April 2016, the company declared dividends of 2 cents per share. What is the dividends declared?

Answer 8

400 000 X 0.02 = $8 000

Question 9

Explain one advantage of operating as a company.

Answer 9

Any one:

1. Limited liability
2. Easier to get funding
3. Run by Board of Directors

Question 10

On 1 Jan 2016, a company has issued share capital of $300 000 and retained earnings of $5 600. After operating for a year, the company made a profit of
$15 200 and declared dividends of $8 200. What is the equity balance on 31 Dec 2016?

Answer 10

Issued share capital = $300 000
Retained earnings = 5 600 + 15 200 - 8 200 = $12 600
Equity balance = $300 000 + $12 600
= $312 600

Question 11

A company has 600 000 ordinary shares issued at $1.30 each. Dividends of $18 000 was declared. Calculate the rate of dividends.

Answer 11

18 000 / 600 000 = 3 cents per share

Question 12

The retained earnings of XP Ltd on 1 Jul 2016 was
$6 200. During the year, XP Ltd declared dividends of $7 100. The company made a profit of $9 500 for the year ended 30 June 2017. What is the retained earning balance on 30 June 2017?

Answer 12

Opening balance + Profit - dividends declared

6 200 + 9 500 - 7 100 = $8 600

Question 13

The retained earnings of MX Ltd on 1 Apr 2016 was
$4 200. During the year, MX Ltd declared and paid dividends of $ 6 300. The company made a profit of
$8 500 for the year ended 31 Mar 2017. What is the retained earning balance on 31 Mar 2017?

Answer 13

Opening balance + Profit - dividends declared

4 200 + 8 500 - 6 300 = $6 400

Question 14

Give the journal entries to record the declaration of dividends $5 300.

Answer 14

Dr Dividends

Cr Dividends payable

Question 15

How does dividends declared affect profit, retained earnings and cash at bank?

Answer 15

Profit - no effect
Retained earnings - reduced
Cash at bank - no effect (unless paid)

Question 16

How is dividends payable shown in the balance sheet?

Answer 16

Dividends payable is shown as a current liability.

Question 17

How is retained earnings shown in the balance sheet?

Answer 17

Retained earnings is shown as shareholders’ equity.

Question 18

On 1 May 2016, the issued share capital of BB Ltd comprising 300 000 shares of $1 each. On 13 August 2016, BB Ltd issued 200 000 shares at $1.40. Calculate the issued share capital on 30 April 2017.

Answer 18

Issued share capital = [300 000 X $1] + [200 000 X $1.40]
= $300 000 + $ 280 000
= $580 000