Question

Tops Ltd was registered on 1 March 2018 with the following authorised share capital:
- 800 000 Ordinary shares
- 350 000 9% preference shares
The following transactions took place for the financial year ended 28 February 2019:
2018
3 March
The company offered 150 000 ordinary shares at R2,00 each to the subscribers to the memorandum (founders of the company) . The founders took up the offer in full and paid for the shares immediately.
15 March
The company offered 100 000 ordinary shares at R3,00 each to the public. The closing date for applications was 10 May 2018.
10 May
Applications for 110 000 shares were received from the public with application monies and the regulatory application documents.
15 May
Shares were allotted to successful applicants.
18 May
Unsuccessful applicants were repaid. The company paid R4 500 in respect of share issue expenses.
2019
30 January
As the company performed better than expected, the directors presented a proposal to declare a dividend of 10 cents per share payable on 28 February 2019. Shareholders approved the proposal at the annual general meeting on 30 January 2019.
28 February
The dividends were paid as approved.
Required:
5.1 Record the above transactions in the general journal for the financial year ended 28 February 2019. (14)
5.2 Explain the difference between a company’s “authorised share capital” and the “Issued share capital”. (1)
NB: Record the date and narration for each journal entry. You may omit the folio number for the journal entries.

Answer 1

5.1

TOPS Ltd.
Journal Entries
	Date	Accounts and Explanation	Debit (Amount in R)	Credit (Amount in R)
(a)	3 March, 2018	Bank A/c                                             Dr.	30,000,000.00
		To Equity Share Capital Application A/c		30,000,000.00
		(Being the ordinary shares issued and subscribed)
(b)	10 March, 2018	Bank A/c                                             Dr.	33,000,000.00
		To Equity Share Capital Application A/c		33,000,000.00
		(Being the ordinary shares issued and subscribed)
(c)	15 May, 2018	Equity Share Capital Application A/c             Dr.	63,000,000.00
		To Equity Share Capital A/c		63,000,000.00
		(Being the application money alloted)
(d)	18 May, 2018	Share Issue Expenses A/c (Profit & Loss Account) Dr.	4,500.00
		To Bank A/c		4,500.00
		(Being share issue expenses recorded)
(e)	30 January, 2019	Retained Earnings                     Dr.	6,300,000.00
		To Dividend Payable A/c		6,300,000.00
		(Being dividend proposed approved by shareholders)
(f)	28 February, 2019	Dividend Payable A/c                 Dr.	6,300,000.00
		To Bank A/c		6,300,000.00
		(Being dividend approved paid to shareholders)

5.2

	Authorized Share Capital	Issued Share Capital
1.	Authorized Share Capital" is the Maximum value of the Share capital i.e. Face Value of the shares, that can be raised by the company by issue of the share capital; as per its Memorandum and Articles of Association.	"Issued Share Capital" is that portion of the Authorised share capital that has been raised by the company from the issue of the share capital, from which the amount has been received by the company from the shareholders.
2.	It Represents the maximum possible funding the company is allowed to raise.	It represents the shareholders’ investment in the company.
3.	It is determined at the time of incorporation of the company	It is determined at the time when the company decides to issue shares.
4.	It has no accounting entry. It is reported in the Balance sheet for information purpose only.	It is reported when the issued shares are paid by for by the shareholders.
5.	It can be increased by taking the approval of the shareholders and amending the Memorandum and the Articles of the Association.	It can be increased by issuing shares to the existing or new shareholders.

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