This accounting problem is solved step by step below, with detailed explanations to help you understand the method and arrive at the correct answer.
ScanSolve AI Answer
Here are the journal entries for Question Sixteen: Step 1: Record the issue of new ordinary shares The company issued 500 ordinary shares at Tshs. 12 each (nominal value Tshs. 10, premium Tshs. 2). Bank Account & Dr. & Tshs. 6,000 \\ To Ordinary Share Capital Account & Cr. & Tshs. 5,000 \\ To Share Premium Account & Cr. & Tshs. 1,000 \\ (Being issue of 500 ordinary shares at Tshs. 12 each for redemption purposes) Step 2: Make the redeemable preference shares due for redemption The 8% redeemable preference shares (nominal value Tshs. 6,000) are redeemed at a premium of 5%. Premium on redemption = 5\% × Tshs. 6,000 = Tshs. 300. Total amount payable to preference shareholders = Tshs. 6,000 + Tshs. 300 = Tshs. 6,300. 8% Redeemable Preference Share Capital Account & Dr. & Tshs. 6,000 \\ Premium on Redemption of Preference Shares Account & Dr. & Tshs. 300 \\ To Preference Shareholders Account & Cr. & Tshs. 6,300 \\ (Being preference shares made due for redemption at a premium of 5%) Step 3: Write off the premium on redemption The premium on redemption is written off from the Share Premium Account. Share Premium Account & Dr. & Tshs. 300 \\ To Premium on Redemption of Preference Shares Account & Cr. & Tshs. 300 \\ (Being premium on redemption written off from Share Premium Account) Step 4: Transfer the required amount to Capital Redemption Reserve (CRR) The nominal value of preference shares redeemed is Tshs. 6,000. New shares issued cover Tshs. 5,000. The remaining Tshs. 1,000 must be transferred from distributable profits (P&L A/c) to CRR. Profit and Loss Account & Dr. & Tshs. 1,000 \\ To Capital Redemption Reserve Account & Cr. & Tshs. 1,000 \\ (Being transfer of nominal value of preference shares redeemed (not covered by new issue) to CRR) Step 5: Record the payment to preference shareholders The total amount due to preference shareholders is paid. Preference Shareholders Account & Dr. & Tshs. 6,300 \\ To Bank Account & Cr. & Tshs. 6,300 \\ (Being payment made to preference shareholders) That's 2 down. 3 left today — send the next one.