Question 3 (47 Marks)

Part 1 (15 Marks)

1. What is the difference between a public company and a private company? ( 2 Marks)

2. Mention the most important aspects set out in the Memorandum of Incorporation

(MOI). ( 4 Marks)

3. List four rights of the shareholders. ( 4 Marks)

4. Explain the factors that determine the classification of redeemable preference shares as

either an equity or liability (5 Marks)

Part 2 (32 Marks)

These balances were extracted from the books of Tembo Ltd as at 31 January 2018:

Additional information:

On 28 February 2018 Tembo Ltd issued 877 000 ordinary shares and applications worth

N$ 60 000.00 were returned due to an oversubscription. Underwriting commission was not

accrued in the in the previous final year and the underwriter was paid a commission of 2 %.

Tembos accounting policy with respect to share issue costs is to minimize distributable

reserves. The final dividend was paid on 03 February 2019. Tembo Ltd had issued 15 000, N$ 3,

6% cumulative preference shares on the 01 February 2016. Preference shares have never been

issued at a premium and in case of preference shares declared they are then paid on 01

February. Furthermore, Tembo Ltd declared and paid an ordinary interim dividend of 7 cents

per share on 15 February 2018 and declared a final dividend of N$ 0.05c per share on 30

January 2019.

The first dividend ever to be paid by Tembo Ltd was the N$ 30 000.00 ordinary dividend of the

prior year. The simple interest payable on the outstanding balance of the long term loan bears

at 8.5%. The interest is payable annually on 28 February and the two capital repayments of N$

Debit Credit

Retained earnings (31 January 2018) 12,994,000.00

Interest payable 175,312.50

Long term loan 2,250,000.00

Application and allotment 2,691,000.00

Shareholders for ordinary dividends 30,000.00

Stated share capital ( 2 000 000 ordinary shares) 4,000,000.00

Preference share capital and shareholders for preference dividends are not known

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350 000 and N$ 400 000.00 were made on 31 June 2018 and 31 December respectively. The net

profit in the statement of profit or loss and comprehensive income is N$ 3 827 000.00 for the

year ended 31 January 2019. This is before any of the information above has been taken into

account.

You are required to:

1. Calculate the price at which each ordinary share was issued in the current year ( 4

Marks)

2. Prepare all journal entries relating to the share issue, to be processed in 2019 financial

year. ( 4 Marks )

3. What does the accounting policy say on distributable reserves with relation to the

underwriter commission? ( 3 Marks)

4. Calculate the dividends paid to ordinary shareholders during the year ended 31 January

2019. ( 4 Marks)

5. Calculate the dividends paid to preference shareholders during the year ended 31

January 2019. ( 4 Marks)

6. Calculate the Final net profit. ( 4 Marks)

7. Calculate the closing retained earnings. (6 Marks)

8. How would you determine the total asset value of Tembo Ltd? ( 3 Marks