7/30/2019 ACCT5001 S1 2010 Week 11 Self-Study Solutions
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ACCT5001 S1 2010 Self-Study Solutions Week 11
ACCT5001 S1 2010 Week 11 Self-Study Solutions.doc 17/05/2010
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PROBLEM SET A 10.9
Africa Ltd
Journal entries for YEJ 2011
(a)
$ $
15 Aug 10 Dividend Declared/Retained Earnings 36 000
Dividend Payable 36 000
Being declaration of final dividend for YEJ2010(200 000 x
$0.18)
01 Oct 10 Dividend Payable 36 000
Cash at Bank 36 000
Being payment of final dividend
06 Jan 11 Dividend Declared/Retained Earnings 40 000
Share Dividend Payable 40 000
Being declaration of interim share dividend(200 000 x 10%
x$2)
15 Mar 11 Share Dividend Payable 40 000
Share Capital 40 000Being payment of interim share dividend
30 Jun 11 Retained Earnings 15,000
General Reserve 15,000
Being transfer to general reserve
(b) Africa Ltd
Statement of Changes in Retained Earnings
For the Year ending 30 June 2011
Retained earnings 1 July 2010 $100,000
Profit 150,000
Less final 2010 dividend (36,000)
Less interim share dividend (40,000)
Transfer to general reserve (15,000)
Retained earnings 30 June 2011 $159,000
ACCT5001 S1 2010 Self-Study Solutions Week 11
ACCT5001 S1 2010 Week 11 Self-Study Solutions.doc 17/05/2010
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(c)
Change in equity during the year
$
Share Capital ($400 000+40 000) 440 000
Reserves ($50 000 +$15 000) 65 000
Retained earnings 159 000
Equity 30 June 2011 664 000
Less: Opening Equity ($400 000+ $50 000 +$100,000) 550 000
Increase in equity $114 000
Or simply equity increased by $150 000 profit less cash dividend
$36,000 = $114 000
(d) Dividends to be paid out of YEJ2011 profits are the interim
share dividend of $40,000
plus the final cash dividend for FY2011 of $39,600 (220,000 x
$0.18)
Dividend payout = $79,600/$150,000 = 53.1%
Return on shareholders equity = $150,000/[($664,000 +
$550,000)/2] = 24.7%
7/30/2019 ACCT5001 S1 2010 Week 11 Self-Study Solutions
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ACCT5001 S1 2010 Self-Study Solutions Week 11
ACCT5001 S1 2010 Week 11 Self-Study Solutions.doc 17/05/2010
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PROBLEM SET A 10.10
Investor Ltd
Borrow at 8% Issue More Shares
Profit before interest and tax $1,200,000 $1,200,000
Interest expense 8% x $2,500,000 (200,000)
Tax expense 30% profit before tax (300,000) (360,000)
Profit 700,000 840,000Shareholders equity 5,000,000
7,500,000
Return on shareholders equity 14% 11.2%
Borrowing yields the greater return for Investor Ltds
shareholders given the current interest
rate. Other factors that should be considered include the
liquidity and solvency risk
associated with future interest and principal payments and
potential changes in interest
rates. Also to be considered is the change in ownership
structure under the share issue
alternative.
ACCT5001 S1 2010 Self-Study Solutions Week 11
ACCT5001 S1 2010 Week 11 Self-Study Solutions.doc 17/05/2010
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PROBLEM SET B 10.9
Aura Ltd
(a)
$ $
15 Aug 10 Dividend Declared/Retained Earnings 12 000
Dividend Payable 12 000
Being declaration of final dividend(100 000 x $0.12)
01 Oct 10 Dividend Payable 12 000
Cash at Bank 12 000
Being payment of final dividend
06 Jan 11 Dividend Declared/Retained Earnings 15 000
Share Dividend Payable 15 000
Being declaration of interim share dividend(100 000 x 10% x
$1.50)
15 Mar 11 Share Dividend Payable 15 000
Share Capital 15 000
Being payment of interim share dividend
30 Jun 11 Retained Earnings 10,000General Reserve 10,000
Being transfer to general reserve
(b)
Aura Ltd
Statement of Changes in Retained earnings
Retained earnings 1 July 2010 $50 000
Profit 50 000
Less final 2010 dividend (12 000)
Less share dividend (15 000)
Transfer to general reserve (10 000)
Retained earnings 30 June 2011 $63 000
