CHAPTER 16

COMPANIES: FORMATION AND OPERATIONS

5. Explain the purpose of each of the following accounts used in a public share issue:
Share Capital, Application, Cash Trust, Allotment, Call, Calls in Advance.

6. Distinguish between a private placement, a public share issue and a rights issue. Distinguish
also between a renounceable rights issue and a non-renounceable rights issue.

Exercise 16.5 Private placement and public issue of shares

Scone Ltd was registered on 1 February 2016. The following events occurred in that year:

Feb. 1 25 000 ordinary shares were allotted to the original members. The shares
were paid for in full at a price of $1 each.
A prospectus was issued for 100 000 10% preference shares and 150 000
ordinary shares, payable in full on application. The issue prices of the
preference shares and ordinary shares respectively were $2 and $1.
Mar. 15 Applications were received for 100 000 preference shares and 220 000
ordinary shares.
Mar. 18 The directors allotted the shares in terms of the prospectus, excess monies
being returned to unsuccessful applicants.

Required
A. Prepare entries in general journal form to record the transactions.
B. Show the equity section of the balance sheet as at 18 March 2016.

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 Problem 16.3 Issue of ordinary and preference shares

Picton Ltd was registered on 1 July 2016. On 4 August a prospectus was issued inviting public
subscriptions for an issue of 200 000 12% preference shares payable $2 in full on application, and
600 000 ordinary shares at a price of $1.60 per share, payable $1 on application, 20c on allotment
and the balance as and when required.
Applications were to be made in multiples of 100 shares with a minimum of 200 preference
shares or 500 ordinary shares. The directors reserved the right to allot the shares applied for in full
or such lesser number as resolved and to apply excess money towards amounts due on allotment.
All other money was to be refunded to applicants.
Applications were received for 240 000 preference shares and 800 000 ordinary shares by
16 August when the directors closed the issue. On 19 August, the directors allotted the shares as
follows.
1. Preference: Three applications for a total of 40 000 shares were rejected, and the balance
allotted in full.
2. Ordinary: Applications for 120 000 shares were rejected in full and the balance was allotted on
a pro rata basis.
On 24 August, refunds were made to the respective applicants in accordance with the directors
resolutions. Share issue costs of $1500 were also paid on this date. Outstanding allotment money
was received by 30 September.
On 8 November the directors resolved that a call of 30c per share was to be made on the
600 000 partly paid ordinary shares. The call is due and payable by 1 December.
Call money was received as follows:
1 December on 520 000 shares
15 December on 40 000 shares.

Required
Prepare entries in general journal form to record the events in the accounts of Picton Ltd.

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 Problem 16.9 Share issues and dividends

At 30 June 2016, Box Hill Ltds equity was as follows:

Issued capital:
400 000 ordinary shares issued at $1.20, fully paid $480 000
80 000 7% preference shares issued at $1, fully paid 80 000
560 000
Retained earnings 348 000
General reserve 70 000
Total equity $978 000

The preference shares were non-participating. The following events occurred after 30 June 2016:

2016
Sept. 1 Final dividends out of retained earnings, as recommended in June, were paid
in cash. This included the 7% preference dividend for the year ended 30 June
2016 and a final ordinary dividend of 10c per share.
Oct. 15 A prospectus was issued inviting subscriptions for 100 000 ordinary shares at
an issue price of $1.40, payable 80 cents on application and 60 cents on
allotment.
Nov. 18 Applications closed, with applications having been received for 100 000
shares. Applicants for 8000 shares had paid in full on application.
Nov. 20 Shares applied for were allotted, with excess application money being applied
to allotment.
Dec. 11 The balance of allotment money due was received.
Dec. 31 In order to keep cash in the company to meet its ever-increasing need for
liquidity, the directors decided not to pay an interim cash dividend. Instead,
they made a bonus issue from the general reserve of one ordinary share
(valued at $1.20) for every 10 ordinary shares held.
2017
June 20 The directors paid the preference dividend for the year.
June 30 The directors recommended a final dividend of 12c per ordinary share.

Required
Prepare the journal entries (in general journal form) necessary to record the above events in Box Hill
Ltds accounting records.