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 December 2020 and 2021, showing the closing entries at the year end. b) Prepare the capital account for the two years ended 31 December 2020 and 2021, and bring down the balance to the next financial year.

4 Mr. Leon Yeo Question 4 (Sole-proprietorship) Megan is a sole trader whose financial year ends on 30 June every year. On 1 July 2020, the balance in the capital account was $50 400. During the year, the following took place. 2020 Nov 19 Cash drawings $600. Dec 29 Goods $400 taken by Megan for her personal use. 2021 Feb 13 Megan contributed her own table costing $250 into the business. May 7 Megan withdrew $850 from the business bank account for private use. Profit for the year ended 31 October 2020 was $23 550. REQUIRED (a) Name and explain the accounting theory which is applied to the treatment of drawings. [2] (b) Prepare Megan’ capital account for the year ended 31 October 2020 and bring down the balance. [5] (c) Explain how owner’s equity changed over the year. [4] Megan is considering changing his sole trader business into a private limited company. REQUIRED (d) State two advantages of setting up a private limited company. [2] (e) State the two professional ethics an accountant should have. [2]