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QUESTION 3 (20 Marks; 30 Minutes)

Kagiso Ltd has the following | authorised share capital:

500 000 10% Non-cumulative, non-redeemable preference shares

800 000 Ordinary shares.

Issued shares on 1 March 20.23 were as follows:

200 000 10% Non- -cumulative, non-redeemable preference shares at R4 000 000.
300 000 Ordinary shares at R3 000 000.

The following share transactions took place during the year ending 28 February 2024:
1 On 1 May 20.23, Kagiso Ltd announced the issuing of a further 200 000 10% preference shares
at R25 per share. Applications for 250 000 10% preference shares were received by the closing date for the applications on 30 june 20.23 the shares were alloted on 16 july 20.23 and the surplus application money was paid back.
2. On 1 September 20.23, the company advertised to issue 400 000 ordinary shares at R15 per
share. The subscription was underwritten by First Bank at a commission fee of 5%
Applications of 350 000 shares were received by the closing date for applications on
30 September 20.23. On 1 November, shares were allotted, and the underwriter took up the
unsubscribed shares.

QUESTION 3: REQUIRED

(a) Journalise the application and allotment of the 10% preference shares for the
year ending 29 February 20.24.

Marks

8

(b) Journalise the application and allotment of the ordinary shares for the year
ending 29 February 20.24.

12

Total marks 20
You have to comply with the IFRS Accounting Standard. Assume that all current IFRSS have
always been in existence. Clearly show all calculations and work to the nearest Rand. Assume al
items and amounts to be material, unless the contrary is evident from the information given.
You are required to clearly indicate which component, part, and/or item of the financial
statements will be affected by any journal entry:

Statement of profit or loss: SPL; Statement of changes in equity: SCE, or Staterment of fnancial

position: SFP

Journal narrations are not required.

1 answer

Here's how you can journalize the application and allotment of the preference shares and ordinary shares for Kagiso Ltd for the year ending 29 February 2024.

(a) Journal Entries for Preference Shares

Calculations:

  • Total Preference Shares Issued: 200,000 shares
  • Issue Price per Share: R25
  • Total Amount Received: 200,000 shares * R25 = R5,000,000
  • Applications Received: 250,000 shares * R25 = R6,250,000
  • Excess Application Money Refunded: (250,000 - 200,000) shares * R25 = R1,250,000

Journal Entries:

  1. To record the applications received:

    • Debit Bank (Applications Received) R6,250,000
    • Credit Share Application (Preference Shares) R6,250,000

  2. To record the allotment of preference shares:

    • Debit Share Application (Preference Shares) R5,000,000
    • Credit Preference Share Capital R5,000,000

  3. To refund excess application money:

    • Debit Share Application (Preference Shares) R1,250,000
    • Credit Bank (Refunded) R1,250,000

Affected Components:

  • Statement of Financial Position (SFP) for Bank and Share Capital (preference shares).
  • Statement of Changes in Equity (SCE) reflecting changes in Share Capital.

(b) Journal Entries for Ordinary Shares

Calculations:

  • Total Ordinary Shares Issued: 400,000 shares (350,000 from applications, 50,000 from underwriting)
  • Issue Price per Share: R15
  • Total Amount Received from Applications: 350,000 shares * R15 = R5,250,000
  • Total Amount Received from Underwriting: 50,000 shares * R15 = R750,000

Journal Entries:

  1. To record applications received:

    • Debit Bank (Applications Received) R5,250,000
    • Credit Share Application (Ordinary Shares) R5,250,000

  2. To record the underwriter's take-up of unsubscribed shares:

    • Debit Bank (Underwriter Take-up) R750,000
    • Credit Share Capital (Ordinary Shares) R750,000

  3. To record the allotment of ordinary shares:

    • Debit Share Application (Ordinary Shares) R6,000,000
    • Credit Ordinary Share Capital R6,000,000

Affected Components:

  • Statement of Financial Position (SFP) for Bank and Share Capital (ordinary shares).
  • Statement of Changes in Equity (SCE) reflecting changes in Share Capital.

Note: The total shares at allotment are calculated as:

  • Total Ordinary Shares Issued = Applications + Underwriter Take-up = 350,000 + 50,000 = 400,000 shares.

This results in a combined total amount received from ordinary share applications and underwriting, which is properly allocated to the share capital accounts in the journal entries.

Make sure to adjust amounts as necessary based on actual figures if they differ from assumptions.