Question 4 (Adapted Past exam question): Finding Equity’s balanceThe following opening balances are provided on 1 July 2019 for Wonder Alice Ltd:Retained Profits $50,000Share Capital $100,000General reserve $10,000Revaluation surplus $20,000Total Shareholder’s Equity $180,000During the financial year, the following transactions happened:• The company made a net profit after tax of $50,000.• The company transferred $15,000 from retained profits to general reserve.• The company declared and paid cash dividends totalled $20,000.• The company issued 1,000 new shares to an institutional investor and received$15,000 cash.• A bonus share issue of $10,000 was made out of the Revaluation Surplus.Required:(1) Draw up all the equity T-accounts (retained profits, share capital, general reserve,revaluation surplus)(2) Find the ending balance of Shareholders’ Equity
Question
Question 4 (Adapted Past exam question): Finding Equity’s balanceThe following opening balances are provided on 1 July 2019 for Wonder Alice Ltd:Retained Profits 100,000General reserve 20,000Total Shareholder’s Equity 50,000.• The company transferred 20,000.• The company issued 1,000 new shares to an institutional investor and received10,000 was made out of the Revaluation Surplus.Required:(1) Draw up all the equity T-accounts (retained profits, share capital, general reserve,revaluation surplus)(2) Find the ending balance of Shareholders’ Equity
Solution
Sure, let's break down the question step by step.
(1) Draw up all the equity T-accounts (retained profits, share capital, general reserve, revaluation surplus)
Retained Profits:
- Opening balance: $50,000
- Add: Net profit after tax: $50,000
- Less: Transfer to general reserve: $15,000
- Less: Cash dividends paid: $20,000
- Ending balance: 50,000 - 20,000 = $65,000
Share Capital:
- Opening balance: $100,000
- Add: Cash received from new shares issued: $15,000
- Ending balance: 15,000 = $115,000
General Reserve:
- Opening balance: $10,000
- Add: Transfer from retained profits: $15,000
- Ending balance: 15,000 = $25,000
Revaluation Surplus:
- Opening balance: $20,000
- Less: Bonus share issue: $10,000
- Ending balance: 10,000 = $10,000
(2) Find the ending balance of Shareholders’ Equity
The ending balance of Shareholders’ Equity is the sum of the ending balances of all the equity T-accounts.
So, Shareholders’ Equity = Retained Profits + Share Capital + General Reserve + Revaluation Surplus = 115,000 + 10,000 = $215,000
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