Twala Ltd. was incorporated on 1 January 2007 with an authorised capital of 200 000 ordinary...

 

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Twala Ltd. was incorporated on 1 January 2007 with an authorised capital of 200 000 ordinary shares of R1,00 each and 200 000 10% redeemable preference shares of R1,00 each. The trial balance of the company at 31 December 2007 was as follows: Ordinary share capital Share premium 10% Preference share capital 6% Debentures of R10 each, secured by mortgage bond over land and buildings General reserve Retained income (1 January 2007) Land and buildings Machinery Furniture Provision for depreciation: Machinery Furniture Reserve for increased replacement value of machinery Investments Loan levy Long-term loan Stock (31.12.2007): Debtors Provision for doubtful debts Bank Creditors Provision for tax (less provisional payments) Expenses accrued Net operating income Dividends received Interim dividend paid Taxation payable for the year (including STC) Merchandise Consumable stores Depreciation: Administrative expenses Salaries: Machinery Fumiture Auditors' remuneration: auditing expenses Directors' emoluments: directors' fees salary of managing director Interest accrued: Bona fide employees R 130 000 The following additional information must be considered: 1. Turnover for the year amounted to R450 000 and consisted of net sales. 2. Debentures Long-term loan 160 000 130 000 40 000 The amount for net operating income was obtained after calculating the gross profit and considering the following items: Lease charges for equipment Provision for doubtful debts (decrease) 6985412 8 500 40 000 R9 800 2400 28 000 5000 1000 R 10 000 40 000 2000 5.000 2.000 60 000 20-000 30 000 3600 2 500 12 000 2875 41 800 18 400 34 000 25 000 27 000 12 000 6 100 89 575 3 000 4. 5. The company earned a net income after taxation of R5 000 for the month of September 2006. Expenses related to the share issue amount to R1 000. The year end of the company is 31 March. 6. 7. The company has sufficient cash, together with the proceeds of the fresh issue, to make any payments which may be required. Required (a) Record the journal entries required to give effect to the redemption and the fresh issue of shares on 30 September 2006, in accordance with the directors' decisions in points 1 to 4. (b) Prepare the 'Capital Employed' section of the balance sheet, as it would appear immediately after the redemption and fresh issue. Presentation must comply with the requirements of the Companies Act. Show all workings separately. (d) (c) Illustrate by means of a pro forma journal entry the effect of the directors' decision (point 5), if it should be confirmed by the shareholders. AFIA Give one good reason for the elaborate provisions made by the Companies Act regulating the procedure for the redemption of redeemable preference shares. Twala Ltd. was incorporated on 1 January 2007 with an authorised capital of 200 000 ordinary shares of R1,00 each and 200 000 10% redeemable preference shares of R1,00 each. The trial balance of the company at 31 December 2007 was as follows: Ordinary share capital Share premium 10% Preference share capital 6% Debentures of R10 each, secured by mortgage bond over land and buildings General reserve Retained income (1 January 2007) Land and buildings Machinery Furniture Provision for depreciation: Machinery Furniture Reserve for increased replacement value of machinery Investments Loan levy Long-term loan Stock (31.12.2007): Debtors Provision for doubtful debts Bank Creditors Provision for tax (less provisional payments) Expenses accrued Net operating income Dividends received Interim dividend paid Taxation payable for the year (including STC) Merchandise Consumable stores Depreciation: Administrative expenses Salaries: Machinery Fumiture Auditors' remuneration: auditing expenses Directors' emoluments: directors' fees salary of managing director Interest accrued: Bona fide employees R 130 000 The following additional information must be considered: 1. Turnover for the year amounted to R450 000 and consisted of net sales. 2. Debentures Long-term loan 160 000 130 000 40 000 The amount for net operating income was obtained after calculating the gross profit and considering the following items: Lease charges for equipment Provision for doubtful debts (decrease) 6985412 8 500 40 000 R9 800 2400 28 000 5000 1000 R 10 000 40 000 2000 5.000 2.000 60 000 20-000 30 000 3600 2 500 12 000 2875 41 800 18 400 34 000 25 000 27 000 12 000 6 100 89 575 3 000 4. 5. The company earned a net income after taxation of R5 000 for the month of September 2006. Expenses related to the share issue amount to R1 000. The year end of the company is 31 March. 6. 7. The company has sufficient cash, together with the proceeds of the fresh issue, to make any payments which may be required. Required (a) Record the journal entries required to give effect to the redemption and the fresh issue of shares on 30 September 2006, in accordance with the directors' decisions in points 1 to 4. (b) Prepare the 'Capital Employed' section of the balance sheet, as it would appear immediately after the redemption and fresh issue. Presentation must comply with the requirements of the Companies Act. Show all workings separately. (d) (c) Illustrate by means of a pro forma journal entry the effect of the directors' decision (point 5), if it should be confirmed by the shareholders. AFIA Give one good reason for the elaborate provisions made by the Companies Act regulating the procedure for the redemption of redeemable preference shares.

Answer rating: 100% (QA)

a Journal Entries Date Accounts and Explanation Debit R Credit R 30 Sep 2006 Redemption of 10 Preference Shares 10 Preference Share Capital 40000 Gene... View the full answer