Answer to Question #318214 in Finance for Nehema

Question

Omwando PLC had 400,000 9% redeemable preference shares of £1.00 per share in issue, originally issued at a premium of £0.40 per share.

The company now proposes to redeem 100,000 of these shares at £1.60 per share, financed partially by the issue of 80,000 ordinary shares of £1.00 per share at £1.20

Prior to the issue of replacement shares, the share premium account had a credit balance of £121,000.

 

Required:

Show the amount of premium payable on redemption to be apportioned from

a.      Share premium account and

b.     Distributable profits

c.      Show the amount, if any, to be transferred to Capital Redemption Reserve as the result of the redemption.

d.     Show journal entries necessary to record above transactions. (Total: 20marks)

 

Answer 1

total share price:

$400 000\times0.4=160 000$

old price dividend:

$160 000\times0.09=14 400$

new share price:

$400 0000\times1=400 000$

new price dividend:

$400 000\times0.09=36000$

a. 36000-14400=21600

b.Debit retained earnings credit settlements with founders - 21 600

с.Debit reserve capital credit settlements with founders - 21 600