Paper 2 Answering Technique
Paper 2 Answering Technique: Accounting for Companies Limited by Shares
This guide shows how to tackle Paper 2 structured and essay questions for Chapter 5, emphasising reading the instructions, correct entry formats, and working that protects method marks.
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Reading and interpreting the question
- Underline command verbs such as 'Prepare', 'Record in the General Journal', 'Calculate', 'Show' and 'Distinguish'. Each demands a different answer format: General Journal, ledger, step-by-step working or an extract of the Statement of Financial Position.
- Identify the key data: number of shares, issue price per share, the preference dividend rate, whether the preference shares are cumulative, and how many financial years are involved.
- Determine the company type (private or public) when the question touches on incorporation under the Companies Act 2016 or the contents of the Company Constitution, because their features and examples differ.
Planning the answer and format before writing
- Sketch a quick outline on the paper: the full heading (company name + statement type + date), then the correct column order. An accurate heading often carries format marks.
- For General Journal questions, remember Debit first, then the Credit indented to the right, followed by a short narration in brackets. Ensure total debit equals total credit.
- For the Statement of Financial Position, place the Owner's Equity components in the usual order: Share Capital (Ordinary and Preference), then Reserves, then Total Owner's Equity.
Recording share issues in the General Journal and ledger
- When shares are issued and cash is fully received, record Bank (Debit) and Ordinary Share Capital or Preference Share Capital (Credit) at the fully paid value (number of units x value per share).
- After the General Journal entry, post each item to the correct ledger account: Bank on the debit side of the Bank account, and the capital on the credit side of the relevant Share Capital account. This protects method marks even if the final figure is wrong.
- If the question mentions an under-subscribed or over-subscribed issue, explain the appropriate action: the issued capital is recognised only to the extent subscribed, while surplus money from over-subscription is refunded to applicants.
Presenting the Owner's Equity components accurately
- Clearly distinguish a company's Owner's Equity (Share Capital + Reserves) from a partnership (each partner's Capital + Current Account) and a sole proprietorship (Capital + Net Profit − Drawings). A common error is mixing the three.
- Show Ordinary Share Capital and Preference Share Capital as separate lines at fully paid value, then Reserves such as Retained Profit, before the Total Owner's Equity.
- Avoid the term 'authorised capital' because under the Companies Act 2016 the concept no longer exists. Use issued and fully paid capital.
Calculating cash dividends and cumulative arrears
- Compute the preference dividend first: preference share capital x the annual rate. For ordinary shares, dividends are stated as a rate or amount per share, and the interim and final dividends are added together.
- For cumulative preference shares, a dividend not declared in a year becomes a dividend in arrears. Cumulative preference shareholders are entitled to claim all arrears first, before ordinary shares receive any dividend.
- Show the working year by year in a table or stepped points so the marker sees the method: state the yearly dividend, the number of years in arrears, and the total finally paid. This helps you earn method marks even if the final total is off.
Managing time and protecting method marks
- Allocate time according to the marks of each question part, not by how hard it feels. Start with the part you are most confident about to bank early marks.
- Always show the working (formula and substituted figures), not just the final answer. In Principles of Accounting, correct working earns method marks even when the final result is wrong.
- Keep time to check: confirm the General Journal balances, statement headings are complete, and the Total Owner's Equity adds up. Small corrections at this stage often save several marks.
| Particulars | Debit | Credit |
|---|---|---|
| Bank | 100,000 | |
| Ordinary Share Capital | 100,000 | |
| (Issue of 100,000 ordinary shares at RM1 each, fully paid) | ||
| Total | 100,000 | 100,000 |
Assumption: 100,000 ordinary shares issued at RM1 each, cash fully received through the bank.
| Particulars | RM |
|---|---|
| Owner's Equity | |
| Ordinary Share Capital | 100,000 |
| Preference Share Capital | 50,000 |
| Retained Profit | 30,000 |
| Total Owner's Equity | 180,000 |
Illustrative figures to show the order of components only.
| Item | Working | RM |
|---|---|---|
| Dividend per year | 50,000 x 6% | 3,000 |
| Arrears from Year 1 | 3,000 x 1 year | 3,000 |
| Current dividend Year 2 | 3,000 x 1 year | 3,000 |
| Total paid in Year 2 | 6,000 |
Assumption: 50,000 cumulative 6% preference shares of RM1 each; dividend not declared in Year 1 then paid in full in Year 2 together with the current year's dividend.
What is the most common format mistake in General Journal share-issue questions?
The common mistakes are not indenting the credit entry to the right, omitting the bracketed narration, and failing to balance total debit against credit. Record Bank as debit, Share Capital as credit at fully paid value, add a short narration, and check the totals match.
How do I show the rights of cumulative preference shareholders in my answer?
Explain that a dividend not declared in a given year accumulates as an arrear, and that cumulative preference shareholders must be paid all those arrears first before ordinary shares receive any dividend. Support the explanation with year-by-year working.
Should I mention authorised capital when computing a company's capital?
No. Under the Companies Act 2016 the concept of authorised capital no longer exists. Focus on issued and fully paid capital (the number of shares issued multiplied by the paid value per share).
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