Exam code: 0452 & 0985
Akila and Darius are considering forming a limited company. They would be the only two shareholders in the company.
Advise Akila and Darius whether they should form a limited company. Justify your answer with two advantages and two disadvantages of Akila and Darius forming a limited company.
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5 marksDF Limited is a company which sells clothes. The financial year of DF Limited ends on 30 September.
The following information is available for the year ended 30 September 2025.
The final ordinary share dividend of $5 000 for the year ended 30 September 2024 was paid on 1 November 2024.
An interim ordinary share dividend of $3 000 for the year ended 30 September 2025 was paid on 1 May 2025.
The profit for the year ended 30 September 2025 was $21 500.
A transfer of $4 000 was made to general reserve on 30 September 2025.
REQUIRED
Complete the statement of changes in equity for the year ended 30 September 2025.
DF Limited
Statement of Changes in Equity for the year ended 30 September 2025
Details | Share capital | General reserve | Retained earnings | Total |
$ | $ | $ | $ | |
On 1 October 2024 | 60 000 | 2 000 | 31 000 | 93 000 |
On 30 September 2025 |
4 marksAn extract from DF Limited’s statement of financial position at 30 September 2025 showed the following:
$ | |
Non-current liabilities | |
7% Debentures (2029) | 25 000 |
Bank loan | 8 000 |
33 000 | |
Current liabilities | |
Trade payables | 2 500 |
Other payables | 1 000 |
3 500 |
Additional information
The debentures were issued 1 October 2023
The bank loan was taken out 1 October 2024 for five years with 5% interest
REQUIRED
Calculate the profit from operations (profit before interest) for the year ended 30 September 2025.
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The directors of DF Limited want to raise more equity. They are deciding between issuing more ordinary shares or issuing preference shares.
REQUIRED
Advise the directors whether they should issue ordinary or preference shares. Justify your answer.
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5 marksK Limited provided the following information.
Its issued ordinary share capital consists of 180 000 ordinary shares of $0.50 each.
On 1 October 2016:
$ | |
General reserve | 4000 |
Retained earnings | 5500 |
The profit for the year ended 30 September 2017 was $9000.
$2000 of this was transferred to the general reserve.
An interim dividend of $4500 was paid during the year.
No dividends were proposed at the end of the year.
REQUIRED
Prepare the statement of changes in equity for the year ended 30 September 2017.
K Limited
Statement of Changes in Equity for the year ended 30 September 2017
Details | Share capital | General reserve | Retained earnings | Total |
$ | $ | $ | $ | |
On 1 October 2016 | ||||
On 30 September 2017 |
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3 marksQ Limited prepares its financial statements to 31 March each year. The company’s retained earnings at 1 April 2022 were $16 250.
During the year ended 31 March 2023, the company made a profit of $43 500 (after charging all expenses and interest). The total dividends of $39 000 for the year were paid by 31 March 2023.
The following balances were extracted from the company’s ledger accounts after the income statement had been prepared.
$ | |
Fittings and equipment at cost | 150 000 |
Provision for depreciation of fittings and equipment | 40 650 |
Motor vehicles at cost | 72 000 |
Provision for depreciation of motor vehicles | 31 125 |
Inventory | 51 790 |
Balance at bank | 1 076 debit |
Trade receivables | 19 700 |
Provision for doubtful debts | 591 |
Trade payables | 31 450 |
5% Debentures (repayable 2029) | 40 000 |
Bank loan (repayable 2027) | 10 000 |
Ordinary share capital | 120 000 |
REQUIRED
Calculate the retained earnings of Q Limited at 31 March 2023
8 marksPrepare the statement of financial position for Q Limited at 31 March 2023.
Q Limited
Statement of Financial Position at 31 March 2023
$ | $ | $ | |
The directors (who are also the shareholders) would like to expand the company and wish to borrow $50 000 to fund the expansion. They are considering whether to issue further ordinary shares or to request another long-term bank loan.
REQUIRED
(i) Suggest two reasons why although the company has made a profit, there is little cash available in the bank account to fund the expansion.
(ii) Advise the directors whether they should fund the expansion by issuing ordinary shares or requesting a bank loan. Justify your answer.
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6 marksB Limited provides cleaning services to client offices and factories. The clients provide their own cleaning materials. The trial balance of B Limited at 30 June 2023 was as follows.
B Limited
Trial Balance at 30 June 2023
Debit | Credit | |
Revenue | 135 040 | |
Wages and salaries | 72 000 | |
Motor expenses | 9 820 | |
Insurance | 11 040 | |
General expenses | 12 780 | |
Motor vehicles at cost | 42 000 | |
Provision for depreciation of motor vehicles | 16 500 | |
Equipment at cost | 5 000 | |
Provision for depreciation of equipment | 2 000 | |
Trade receivables | 1 640 | |
Bank | 19 950 | |
Ordinary share capital | 10 000 | |
General reserve | 2 000 | |
Retained earnings | 13 490 | |
Dividend paid on ordinary shares | 4 800 | |
179 030 | 179 030 |
Additional information
Revenue of $9 240 was received in advance.
The insurance charge for the 12 months to 31 December 2022 was $7 200 and for the 12 months to 31 December 2023 it is $7 440. On 1 January 2023 insurance was paid in full for the 12 months to 31 December 2023.
Accrued general expenses at 30 June 2023 were $186.
Depreciation is to be charged on motor vehicles at 25% per annum using the reducing balance method.
Depreciation on equipment is to be charged at 20% per annum using the straight line method.
No dividends were outstanding at 30 June 2023.
$1 000 is to be transferred to the general reserve at 30 June 2023
REQUIRED
Prepare the income statement for B Limited for the year ended 30 June 2023.
B Limited
Income Statement for the year ended 30 June 2023
$ | $ | |
Prepare the statement of changes in equity for B Limited for the year ended 30 June 2023.
B Limited
Statement of Changes in Equity for the year ended 30 June 2023
Details | Ordinary Share capital | General reserve | Retained earnings | Total |
$ | $ | $ | $ | |
On 1 July 2022 | ||||
On 30 June 2023 |
Explain why:
(i) B Limited has no inventory
(ii) B Limited does not require a provision for doubtful debts
The directors of B Limited are also the shareholders. They plan to expand the company. They are considering whether to issue debentures or ordinary shares.
REQUIRED
Advise the directors whether they should issue debentures or ordinary shares. Justify your answer
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