Question 2
On 1 March 2020, ABC Ltd was registered and a prospectus was issued inviting applications for
1,000,000 ordinary shares at an issue price of $5. The shares were payable $2 on application, $2 on
allotment (due 30 April), and $1 on a final call (expected to be made after 2 years).
By 31 March 2020, applications had been received for 1,400,000 ordinary shares. On 1 April 2020,
1,000,000 ordinary shares were issued. The constitution allows the directors to apply excess
application money to the allotment account. All outstanding allotment money was received by the
due date, and share issue costs of $10,000 were paid on this date.
On 30 June 2020, ABC Ltd offered additional ordinary shares to all ordinary shareholders through
a 1 for 10 rights issue. The terms of the rights issue included an issue price of $4.50 per share. All
ordinary shareholders took up the offer
On 1 October 2020, ABC Ltd issued to existing ordinary shareholders 100,000 options to buy
100,000 ordinary shares. Each option costs 50 cents and entities the holder to buy one ordinary share
at a price of $2.50, exercisable on 31 October 2020. All options were exercised on that date.
On 30 November 2020, ABC Ltd paid interim dividend of 10 cents per share for ordinary shares.
Required
Prepare the journal entries to record the transactions of ABC Ltd for the events outlined above
(Total = 11 marks)

Check the explanation

Explanation:

S.no.DateParticulars                                Debit ($)        Credit($)

1.31.03.2020Bank A/cDr                           2800000  

To Equity Share Application A/cCr                                  2800000

(Being Application Money received on Shares)    

2.01.04.2020Equity Share Application A/c2800000  

To Share Capital A/cCr                                                    2000000

To Share Allotment A/cCr                                                  800000

(Being allotment made to shareholders)    

3.01.04.2020Equity Share Allotment A/c  2000000  

To Equity Share Capital A/cCr                                           2000000

(Being allotment amount transfer to capital account)    

4.01.04.2020Bank A/cDr                         1200000  

To Equity Share Allotment A/cCr                                       1200000

(Being Balance allotment amount received)    

5.01.04.2020Share Issue Expenses A/c Dr  10000  

To Bank A/cCr                                                                      10000

(Being Share issue Expenses paid)    

6.30.06.2020Bank A/cDr                           450000  

To Share Capital A/cCr                                                       450000

(Being Right Share Issued)    

7.01.10.2020Bank A/cDr                            250000  

To Share Capital A/cCr                                                      250000

(Being Options given to shareholders)    

8.01.10.2020Share Expenses A/cDr.    50000  

To Bank A/cCr.                                                                    50000

(Being Option cost 50cents per share paid)    

9.30.11.2020Interim Dividend A/cDr     120000  

To Bank A/cCr                                                                    120000

(Being Interim Dividend Paid)  

answer; is usually (less than) the socially optimal level of consumption;