Common Mistakes
Common Mistakes: Accounting for Companies Limited by Shares
Below are common student mistakes in Chapter 5, Accounting for Companies Limited by Shares, together with quick ways to avoid them in the exam.
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Company concept & Companies Act 2016
Types of capital & share features
Share issue & journal entries
Company owner's equity
Cash dividend computation
| Particulars | Debit | Credit |
|---|---|---|
| Bank | 300,000 | |
| Ordinary Share Capital | 300,000 | |
| Total | 300,000 | 300,000 |
Issue of 200,000 ordinary shares at an issue price of RM1.50 per unit, money received through the bank.
| Year | Dividend due | Dividend paid | Accumulated arrears |
|---|---|---|---|
| Year 1 | 6,000 | 0 | 6,000 |
| Year 2 | 6,000 | 0 | 12,000 |
| Year 3 | 6,000 | 18,000 | 0 |
Annual preference dividend = 6% × RM100,000 = RM6,000. Arrears must be cleared before ordinary shares receive any dividend.
Does a company still need to record registered (authorised) capital?
No. Under the Companies Act 2016 the concept of registered capital has been abolished. A company records only issued and fully paid-up capital, and shares no longer have a par value.
How do I compute dividends for cumulative preference shares with arrears?
Compute the fixed preference dividend for each year (rate × preference share capital). Clear all prior-year arrears first, then the current-year preference dividend, and only the remaining balance goes to ordinary shareholders.
How does a company's owner's equity differ from a partnership's and a sole proprietor's?
A company's equity consists of share capital, reserves and retained profit, with no drawings. A sole proprietor has a single capital account, while a partnership has a capital account and a current account for each partner.
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