Equity Practice

1 Mr. Leon Yeo Principles of Accounts Revision Topic: Equity Question 1 (Private Limited Company) On 1 January 2020, Dino Pte Ltd had a share capital balance of $75 000 with 25 000 ordinary shares issued and a retained earnings balance of $24 750. The financial year of the business ends on 31 December. REQUIRED (a) Explain the term retained earnings. [2] (b) Define dividends. [2] (c) State three reasons why the shareholders’ equity in a private limited company may be different at the end of the financial year from that at the beginning. [3] On 13 March 2020, Dino Pte Ltd issued another 50 000 shares at $1.50 each. The business made a profit of $129 000 for the year ended 31 December 2020 and declared a dividend of $0.15 per share. REQUIRED (d) Calculate the share capital as at 31 December 2020. [1] (e) Calculate the amount of dividends declared on 31 December 2020. [1] (f) Prepare the retained earnings account for the year ended 31 December 2020. [3]

2 Mr. Leon Yeo Question 2 (Private Limited Company) The following information was available for JRT Sports Pte Ltd at 1 April 2020. $ Share capital, 200 000 ordinary shares 400 000 Retained earnings 138 700 Additional information 1 On 22 January 2021 there was an issue of 50 000 shares for $1.50 each. All the shares were sold and fully paid by cheque. 2 The company made a loss of $52 000 for the year ended 31 March 2021. 3 On 31 March 2021, a final dividend of $0.15 per share was declared and will be paid on 30 April 2021. REQUIRED (a) State the meaning of: (i) Dividends (ii) Retained earnings [2] (b) Prepare the journal entries for items 1 and 3. Narrations are not required. [4] (c) Prepare the retained earnings account for the year ended 31 March 2021. [3] (d) Prepare an extract of the statement of financial position of J Sports Pte Ltd as at 31 March 2021. [3]

3 Mr. Leon Yeo Question 3 Simon Trading had a credit balance of $48 000 in its capital account as at 1 January 2020. The following transactions took place during the financial year ended 31 December 2020 and 2021. 2020 May 5 Owner took out $2 500 cash from the business bank account for personal use. Nov 7 Owner took some goods costing $800 for his personal use. Nov 7 Owner paid for insurance of $2 000 meant for the business using his money from his bank account. Dec 31 The business made a profit of $6 000 for the year. 2020 Feb 6 Owner paid for the amount due to a trade payable, Jerry, $2 500, from his private funds. May 2 Owner distributed inventory worth $1 200 for use as advertising samples during a roadshow event. Dec 8 A business cheque of $7 500 was issued for the rental expense of the owner’s house. Dec 31 The business made a loss of $4 500 for the year. REQUIRED a) Prepare the drawings account for the two years ended 31 De