Level: Intermediate
Intermediate Worked Examples: Accounting for Companies Limited by Shares
Six graded examples covering share issues, oversubscription, the Owner's Equity components and cash dividend computations including cumulative preference dividends, in line with Chapter 5 of the Form 5 Principles of Accounting DSKP.
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Example 1: Issue of ordinary shares and ledger posting
Question
Solution plan
Cash flowing into the bank increases assets, so Bank is debited RM200,000 (200,000 x RM1). Share capital rises, so the Ordinary Share Capital account is credited RM200,000. The credit is then posted to the ledger: the Ordinary Share Capital account is credited with 'Bank' and the balance carried down is shown on the debit side.
| Date | Particulars | Debit (RM) | Credit (RM) |
|---|---|---|---|
| 15 Mar 2023 | Bank | 200,000 | |
| Ordinary Share Capital | 200,000 | ||
| (Issue of 200,000 ordinary shares at RM1 each) | |||
| Total | 200,000 | 200,000 |
| Date | Particulars | RM | Date | Particulars | RM |
|---|---|---|---|---|---|
| 31 Mar 2023 | Balance c/d | 200,000 | 15 Mar 2023 | Bank | 200,000 |
| 200,000 | 200,000 | ||||
| 1 Apr 2023 | Balance b/d | 200,000 |
Answer
Bank is debited RM200,000 and Ordinary Share Capital is credited RM200,000. The Ordinary Share Capital account balance brought down (b/d) is RM200,000 on the credit side.
Where marks are usually lost
Example 2: Issue of two share types and paid-up capital
Question
Solution plan
Total cash received = (300,000 x RM1) + (100,000 x RM1) = RM400,000; Bank is debited once with RM400,000. Two capital accounts are credited separately: Ordinary Share Capital RM300,000 and Preference Share Capital RM100,000. Paid-up capital is the total value of shares that have been fully paid.
| Date | Particulars | Debit (RM) | Credit (RM) |
|---|---|---|---|
| 1 Jul 2023 | Bank | 400,000 | |
| Ordinary Share Capital | 300,000 | ||
| 6% Preference Share Capital | 100,000 | ||
| (Issue of 300,000 ordinary and 100,000 preference shares at RM1 each) | |||
| Total | 400,000 | 400,000 |
| Type of share | Number of shares | Price (RM) | Capital (RM) |
|---|---|---|---|
| Ordinary shares | 300,000 | 1 | 300,000 |
| 6% Preference shares | 100,000 | 1 | 100,000 |
| Issued & fully paid-up capital | 400,000 |
Answer
Bank is debited RM400,000; Ordinary Share Capital is credited RM300,000 and 6% Preference Share Capital RM100,000. The issued and fully paid-up capital is RM400,000.
Where marks are usually lost
Example 3: Oversubscribed share issue
Question
Solution plan
Application money for 200,000 shares = RM200,000 received: Debit Bank, Credit Share Application account. When 150,000 shares are allotted, RM150,000 is transferred to capital: Debit Share Application, Credit Ordinary Share Capital. The excess on 50,000 shares (RM50,000) is refunded: Debit Share Application, Credit Bank.
| Particulars | Debit (RM) | Credit (RM) |
|---|---|---|
| Bank | 200,000 | |
| Share Application account | 200,000 | |
| (Application money for 200,000 shares received) | ||
| Share Application account | 150,000 | |
| Ordinary Share Capital | 150,000 | |
| (Allotment of 150,000 ordinary shares at RM1 each) | ||
| Share Application account | 50,000 | |
| Bank | 50,000 | |
| (Refund of money for 50,000 oversubscribed shares) | ||
| Total | 400,000 | 400,000 |
Answer
The Bank received RM200,000, of which RM150,000 was transferred to Ordinary Share Capital and RM50,000 refunded to unsuccessful applicants. The final ordinary share capital issued is RM150,000.
Where marks are usually lost
Example 4: Owner's Equity section of the Statement of Financial Position
Question
Solution plan
The Owner's Equity of a company consists of share capital (ordinary and preference) plus reserves such as Retained Profit. Total the share capital first (600,000 + 200,000 = 800,000), then add Retained Profit RM150,000 for total Owner's Equity of RM950,000. This differs from a sole trader (Capital + Net Profit - Drawings) or a partnership (partners' Capital and Current accounts).
| Particulars | RM | RM |
|---|---|---|
| OWNER'S EQUITY | ||
| Ordinary Share Capital (600,000 shares) | 600,000 | |
| 5% Preference Share Capital (200,000 shares) | 200,000 | |
| Total Share Capital | 800,000 | |
| Retained Profit | 150,000 | |
| Total Owner's Equity | 950,000 |
Answer
Total Share Capital is RM800,000 and after adding Retained Profit of RM150,000, total Owner's Equity is RM950,000.
Where marks are usually lost
Example 5: Interim, final and preference dividends
Question
Solution plan
The preference dividend is at a fixed rate on preference share capital: 8% x RM150,000. Ordinary dividends are on ordinary share capital of RM500,000; the interim dividend (paid mid-year) is 4% and the final dividend (declared at year end) is 6%. Add all three for the total cash dividend.
| Type of dividend | Base (RM) | Rate | Dividend (RM) |
|---|---|---|---|
| 8% preference dividend | 150,000 | 8% | 12,000 |
| Interim ordinary dividend | 500,000 | 4% | 20,000 |
| Final ordinary dividend | 500,000 | 6% | 30,000 |
| Total cash dividend | 62,000 |
Answer
The preference dividend is RM12,000, the interim ordinary dividend RM20,000 and the final ordinary dividend RM30,000, giving a total cash dividend for 2023 of RM62,000.
Where marks are usually lost
Example 6: Cumulative preference dividend and dividends in arrears
Question
Solution plan
Annual preference dividend = 6% x RM250,000 = RM15,000. Because the shares are cumulative, the dividends not declared in 2021 and 2022 accumulate as arrears. By 2023 the arrears = RM15,000 (2021) + RM15,000 (2022) = RM30,000. In 2023 the company pays the arrears of RM30,000 plus the current dividend of RM15,000 = RM45,000, and the arrears return to nil.
| Year | Dividend due (RM) | Dividend paid (RM) | Accumulated arrears (RM) |
|---|---|---|---|
| 2021 | 15,000 | 0 | 15,000 |
| 2022 | 15,000 | 0 | 30,000 |
| 2023 | 15,000 | 45,000 | 0 |
| Total paid in 2023 | 45,000 |
Answer
The annual preference dividend is RM15,000. The accumulated arrears at end of 2022 are RM30,000. In 2023, preference shareholders receive RM45,000 (arrears RM30,000 + current dividend RM15,000) and the arrears fall to nil.
Where marks are usually lost
Other sets for this chapter
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