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ACF2100 Lecture Notes - Lecture 10: Issued Shares, Financial Statement, Rights Issue

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orangetoad327
23 Oct 2018
School
Monash Caulfield
Department
Accounting
Course
ACF2100
Professor
Michelle (Chenlan) Song

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Document Summary

Earnings per share is a ratio that is (cid:272)al(cid:272)ulated (cid:271)y (cid:272)o(cid:373)pari(cid:374)g a(cid:374) e(cid:374)tity"s profit with the (cid:374)u(cid:373)(cid:271)er of ordinary shares it has on issue. It"s used to compare the after-tax profit available to ordinary shareholders of an entity on a per share basis, with that of other entities. It"s a (cid:373)easure of the i(cid:374)terests of a(cid:374) ordi(cid:374)ary shareholder i(cid:374) the perfor(cid:373)a(cid:374)(cid:272)e (cid:894)profit(cid:895) of a(cid:374) e(cid:374)tity across a reporting period. Ear(cid:374)i(cid:374)gs per share (cid:373)ust (cid:271)e prese(cid:374)ted i(cid:374) a(cid:374) e(cid:374)tity"s statement of profit or loss and other comprehensive income even if the amounts are negative. Totally, three types, so please read the question carefully. A bonus share is a free share of stock given to current shareholders in a company, based upon the number of shares that the shareholder already owns. While the issue of bonus shares increases the total number of shares issued and owned, it does not change the value of the company.

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Related Questions

Question 3 (50 marks)
The following information is available for Heritage Limited:
1. The reporting period of Heritage Ltd ends on 30 June of every year.
The following balances are available as at 30 June 20x8
Land and building at cost 400 000
Accumulated depreciation on buildings at 01/07/20x7 12 000
Furniture at cost 80 000
Accumulated depreciation as at 01/07/20x7 10 000
Vehicles at cost 300 000
Accumulated depreciation as at 01/07/20x7 60 000
Investments as at 01/07/20x7 34 000
Bank 96 700
Trade and other receivables 20 000
Ordinary share capital 275 000
Preference share capital 280 000
Retained earnings as at 01/07/20x7 7 000
Replacement reserves 58 250
10% Bank loan 100 000
Payables 33 500
Additional information:
1. The buildings are occupied for the purposes of the activities of the entity and are accounted for in terms of the cost model. At the date of acquisition, 01 July 20x6, the land was valued at N$ 100 000 and buildings at N$ 300 000. Depreciation is written off on buildings at 4% per annum on the straight line method.
2. Furniture and vehicles were purchased on 01 July 20x6 at N$ 80 000 and N$ 300 000 respectively. Depreciation is written off on furniture at 12,5% per year on cost and on
Page 13 of 21
vehicles at 20% per year on the diminishing balance method. The necessary write-offs for the current year still need to be done.
3. The value of the investments is valued at N$ 42 000 as at 30 June 20x8
4. Inventories consist as at 01 June 20x8 amounted to N$ 22 000. Inventories are measured at lower of cost (FIFO) and net realisable value.
5. Authorised share capital for Heritage Ltd is 400 000 ordinary shares at N$ 1,10 each and 200 000 8% preference shares at N$ 1,75 each. The company had already issued 250 000 ordinary shares at N$ 275 000 and 160 000 preference shares at N$ 280 000. The company had issued 25 000 shares at N$ 2,00 during the year. Preference share capital form part of equity.
6. The loan was entered into on 01 July 20x6 at an interest rate of 10% per annum. The loan is secured by a mortgage bond on land and buildings and is repayable in annual instalments of N$ 20 000 from 31 December 20x8.
7. Payables consist of the following:
Trade payables 6 000
Namibian company tax 3 000
Dividend payable 24 500
8. Profit for the year amounted to N$ 60 000.
9. On 30 March 20x8 a new vehicle with a cost price of N$ 55 000 was purchased for use in the delivery of goods to customers.
10. At 30 June 20x8, inventory worth N$ 4 000 were stolen.
Required:
1.1 Prepare the statement of financial position as at 30 June 20x8 to comply with the requirements of IFRS and Companies Act,
1.2 Prepare the following notes to accompany the financial statements and to comply with IFRS and Companies Act:
? Basis of presentation
? Statement of significant accounting policies
? Property, plant and equipment
? Financial assets
? Inventories
? Share capital and
? Non-current liabilities as at 30 june20x8; and
Page 14 of 21
1.3 The statement of changes in equity for the year ended 30 June 20x8 for Heritage Ltd to comply with the minimum requirements of the Companies Act of 2008 and International Financial Reporting Standards (IFRS). Comparative figures are required were necessary

Question 3 (50 marks)
The following information is available for Heritage Limited:
1. The reporting period of Heritage Ltd ends on 30 June of every year.
The following balances are available as at 30 June 20x8
Land and building at cost 400 000
Accumulated depreciation on buildings at 01/07/20x7 12 000
Furniture at cost 80 000
Accumulated depreciation as at 01/07/20x7 10 000
Vehicles at cost 300 000
Accumulated depreciation as at 01/07/20x7 60 000
Investments as at 01/07/20x7 34 000
Bank 96 700
Trade and other receivables 20 000
Ordinary share capital 275 000
Preference share capital 280 000
Retained earnings as at 01/07/20x7 7 000
Replacement reserves 58 250
10% Bank loan 100 000
Payables 33 500

Additional information:
1. The buildings are occupied for the purposes of the activities of the entity and are accounted for in terms of the cost model. At the date of acquisition, 01 July 20x6, the land was valued at N$ 100 000 and buildings at N$ 300 000. Depreciation is written off on buildings at 4% per annum on the straight line method. 2. Furniture and vehicles were purchased on 01 July 20x6 at N$ 80 000 and N$ 300 000 respectively. Depreciation is written off on furniture at 12,5% per year on cost and on


Page 13 of 21

vehicles at 20% per year on the diminishing balance method. The necessary write-offs for the current year still need to be done. 3. The value of the investments is valued at N$ 42 000 as at 30 June 20x8 4. Inventories consist as at 01 June 20x8 amounted to N$ 22 000. Inventories are measured at lower of cost (FIFO) and net realisable value. 5. Authorised share capital for Heritage Ltd is 400 000 ordinary shares at N$ 1,10 each and 200 000 8% preference shares at N$ 1,75 each. The company had already issued 250 000 ordinary shares at N$ 275 000 and 160 000 preference shares at N$ 280 000. The company had issued 25 000 shares at N$ 2,00 during the year. Preference share capital form part of equity. 6. The loan was entered into on 01 July 20x6 at an interest rate of 10% per annum. The loan is secured by a mortgage bond on land and buildings and is repayable in annual instalments of N$ 20 000 from 31 December 20x8. 7. Payables consist of the following:
Trade payables 6 000
Namibian company tax 3 000
Dividend payable 24 500
8. Profit for the year amounted to N$ 60 000. 9. On 30 March 20x8 a new vehicle with a cost price of N$ 55 000 was purchased for use in the delivery of goods to customers. 10. At 30 June 20x8, inventory worth N$ 4 000 were stolen.

Required:
1.1 Prepare the statement of financial position as at 30 June 20x8 to comply with the requirements of IFRS and Companies Act,
1.2 Prepare the following notes to accompany the financial statements and to comply with IFRS and Companies Act:
? Basis of presentation ? Statement of significant accounting policies ? Property, plant and equipment ? Financial assets ? Inventories ? Share capital and ? Non-current liabilities as at 30 june20x8; and


Page 14 of 21

1.3 The statement of changes in equity for the year ended 30 June 20x8 for Heritage Ltd to comply with the minimum requirements of the Companies Act of 2008 and International Financial Reporting Standards (IFRS). Comparative figures are required were necessary.

Choose the correction answer

7. Stock warrants outstanding shouldbe classified as

a. liabilities.

b. reductions of capital contributed in excess ofpar value.

c. assets.

d. None of these answers are correct.

8. The date on which to measure thecompensation element in a stock option granted to a corporateemployee ordinarily is the date on which the employee

a. is granted the option.

b. has performed all conditions precedent toexercising the option.

c. may first exercise the option.

d. exercises the option.

9. Which of the following isnot a characteristic of a noncompensatory stockpurchase plan?

a. It is open to almost all full-time employees.

b. The discount from market price is small.

c. The plan offers no substantive optionfeature.

d. All of these are characteristics.

10. On January 1, 2014, Trent Companygranted Dick Williams, an employee, an option to buy 400 shares ofTrent Co. stock for $30 per share, the option exercisable for 5years from date of grant. Using a fair value option pricing model,total compensation expense is determined to be $3,600. Williamsexercised his option on September 1, 2014, and sold his 400 shareson December 1, 2014. Quoted market prices of Trent Co. stock during2014 were:

January1 $30 per share

September1 $36 per share

December1 $40 per share

The service period is for two years beginning January 1, 2014. As aresult of the option granted to Williams, using the fair valuemethod, Trent should recognize compensation expense for 2014 on itsbooks in the amount of

a. $4,000.

b. $3,600.

c. $1,800.

d. $0.

11. Incomputing earnings per share for a simple capital structure, if thepreferred stock is cumulative, the amount that should be deductedas an adjustment to the numerator (earnings) is the

a. preferred dividends in arrears.

b. preferred dividends in arrears times (one minusthe income tax rate).

c. annual preferred dividend times (one minus theincome tax rate).

d. None of these answers are correct.

12. The following information isavailable for Barone Corporation:

January 1,2015 Sharesoutstanding 2,000

April 1,2015 Sharesissued 320,000

July 1,2015 Treasury sharespurchased 120,000

October 1,2015 Shares issued in a 100%stockdividend 2,200

The number of shares to be used incomputing earnings per common share for 2015 is

a. 4,520,800.

b. 4,380,000.

c. 4,360,000.

d. 2,730,000.

13. Incomputing earnings per share, the equivalent number of shares ofconvertible preferred stock are added as an adjustment to thedenominator (number of shares outstanding). If the preferred stockis cumulative, which amount should then be added as an adjustmentto the numerator (net earnings)?

a. Annual preferred dividend

b. Annual preferred dividend times (one minus theincome tax rate)

c. Annual preferred dividend times the income taxrate

d. Annual preferred dividend divided by the incometax rate

14. Fugate Company had 900,000 sharesof common stock issued and outstanding at December 31, 2014. OnJuly 1, 2015 an additional 750,000 shares were issued for cash.Fugate also had stock options outstanding at the beginning and endof 2015 which allow the holders to purchase 225,000 shares ofcommon stock at $20 per share. The average market price of Fugate'scommon stock was $25 during 2015. What is the number of shares thatshould be used in computing diluted earnings per share for the yearended December 31, 2015?

a. 1,695,000

b. 1,455,000

c. 1,331,250

d. 1,320,000