Financial Accounting Assignment: Solutions and Analysis

This document provides a detailed solution to a corporate and financial accounting assignment. The solution covers various aspects of accounting, including journal entries, ledger accounts, share capital reduction, share buybacks, different types of debt instruments, methods of asset acquisition, and the recording of financial transactions. The assignment also addresses topics like calculating profit margins, analyzing profit realized from inventory, and preparing financial statements. The solution includes comprehensive explanations, calculations, and examples to provide a clear understanding of the accounting principles and practices. Further, the assignment provides insights into topics like deferred tax assets, depreciation, and the preparation of key financial statements such as the income statement and balance sheet.

Corporate and financial
accounting

Table of Contents
QUESTIONS...................................................................................................................................3
2...................................................................................................................................................3
3...................................................................................................................................................6

QUESTIONS
1.
(a) General entries
Cash A/c Debit $ 1,000,000
Share Application A/c cr $ 1,000,000
(Application received = 500000*2)
Share application A/c Db. $ 200000
Cash A/c Cr. $ 200000
(Remaining application needed to be returned)
(b) Ledger
Share application A/c
Date Particular Amount Date Particular Amount
31-06-2019 By share
application
1000000
1-08-2019 Top share
application
200000
31-08-2019 To bal c/f 800000
Cash A/c
Date Particular Amount Date Particular Amount
31-06-2019 To Cash 1000000
1-08-2019 By cash 200000
31-08-2019 By bal c/f 800000
2.
A) Reasons to reduce share capital
It is important to be using capital reductions as a method to meet multiple business goals:
Paying dividends: The distribution of dividends is by far the most popular aim. The decrease of
enabling smart for the eradication of impairment loss, that would otherwise help stop the
dividend payments, to generate reserves for distribution. Even so, although a business may still
generate income on the evaluate the profitability for that reason, accumulated losses might just

have a negative impact on the maintained profitability deposits including the company and may
help stop the reimbursement to stockholders of dividends. Unless the price of the business’s
assets has dropped, if the transaction has been ineffective, or if the firm has suffered a lengthy
period of operating losses, resolving these failures with such a capital reduction might be the
acceptable way.
Returning surplus capital: A corporation may well have assets that, also for near future, is
redundant to its needs and some of which might then wish to go back to its investors. This may
normally accompany the question of a quantity of shares that never eventuated, to support a deal.
The return of additional funds may be used to discharge the responsibility for the payment of
outstanding share capital or to compensate the owners with paid-up share capital. Remember that
this would not contribute to a dividend pay-out.
B) Allowable methods of reducing share capital.
Since capital removal is a complicated problem both functionally and lawfully, it requires to be
treated with caution. The capital decrease is still up for review by the Tribunal depending mostly
on company's submission. The corporation planning to apply for a decrease that just be a
business entity by shareholding or a legal entity by shareholding or pledge. This capital budget
decrease must be accepted by means of a special agreement enacted by the board. In the
following manner, the business can minimize its equity shares:
 Decrease or extinguish responsibility with regard to the equity value not received to all
the securities.
 Reducing liabilities on all of the shares by writing off any outstanding shares paid up that
is in abundance or having to cancel some equity shares cash up that is missing which is
not reflected by the reserves available.
 When a company's liquidity is decreased, the agreement is changed by decreasing the
amounts of its debt financing and securities accordingly.
 In the event that the organization is in repayments in redemption of any investments
company receives or of the income payment, the investment decrease could not be
produced.
C) Differences between share buyback and capital reduction.
Share buyback Capital reduction

When some capital allocated to a corporation in c
onsideration of a shareholder's stock is transferred
to the participant, a decline of capital stock happe
ns.
Category 256B of the constitution stipulates that e
ven if the
decrease is completed, a corporation can decrease
the share capital:
(a) is equitable to the shareholders of
the business as a whole as well sensible; The willi
ngness of the business to pay the lenders is not fin
ancially prejudiced (although notice this would n
ot happen if the securities for null evaluation are
decided to cancel)
(c) Is authorised under provision 256C of the Law
by stakeholders. There are two major kinds of
Decrease of capital: fair and limited. Equal decrea
se is when
Section 257A including its
constitution stipulates that a
corporation can purchase its additional
shares if:
(a) the buy-back shall not greatly
affect the willingness of the employer
to increase its creditors;
(b) that the organisation complies with
the terms of Section 2.
A variety of different types of
shareholder buy-backs are available,
such as:
1. Fair access where a rational
incentive is given to all existing shares
to receive an invitation to repurchase
the same proportion of their common
shares;
2. Selective acquire-backs, whereby
non-identical deals are offered to
employees, are only offered to certain
of the employees of the group, such as
buy-back deals;
3. Employee share buy-back scheme,
where a business can resell-back
shares purchased by or for the
remaining workforce or higher paid
directors;
4. Buy-backs on the sector, whereby
listed firms will buy back certain stock
in the ordinary course of stock market
buying and selling

5. Minimum ownership buy-backs,
where traded firms acquire from
owners unsellable fragments of shares.
D) Different types of debts instruments.
Debt instruments are also the methods used by businesses to even provide their development,
acquisitions and strategic development with financing (short-term and also long-term) and
arrive with an obligation to support the same during the defined duration.
Debentures
The widely utilised and most agreed source with long-term funding for a corporation is a
debenture. These bear a fixed rate mortgage on the funding that the business receives from
this outstanding debt mode.
Bonds
Bonds are much like debt securities, but the key distinction is that loans are issued by state,
central banks and major corporations, and they are therefore secured with shares, so they
have a fee on the value of the entity.
3.
A) Ways in which a company may expand by obtaining new assets.
Through exploring any variety of paths, corporations will extend their activities. Incremental in
structure, i.e. raising inventory levels or resources made without requiring wholesale
improvements to infrastructure or other operating elements, are by far the most basic ways
through which small businesses expand their company. But generally, after a certain amount of
time, organisations with the potential and motivation to expand will decide that other paths can
be considered. Common small company development pathways include:
 Development by purchasing another (also often lower in size) current company
 Providing other businessmen franchise control
 Property rights licences of third party companies
 Creation of contractual arrangements with distribution companies and/or dealerships
 Pursuing alternative routes for ads
 Joining business cooperatives in some traditional fields of activity, including
advertisement and buying, to gain savings
 Offerings for public stocks

 Plans for workplace company shares
b)
S. No Particular Dr. ($) Cr. ($)
1 Fair value of Assets 2,640,000
Fair value of Retain earning 1,120,000
To Fair value of Liabilities 720,000
To Cash 1,000,000
To Shares holder’s equity 800,000
To Shares 1200,000
To Goodwill 40,000
4.
a.
Date Particular Debit Credit
July 2019 Bank a/c Dr
To Share application a/c
36000000 36000000
15-08-2019 Share application a/c Dr
To Share capital a/c
To share allotment
36000000
6000000
30000000
20-09-2019 Share allotment a/c Dr
To Share capital
24000000
24000000
20-09-2019 Cash a/c Dr
Calls in arrears a/c Dr
To share allotment a/c
To Share capital a/c
18000000
6000000
6000000
18000000
30-09-2019 Share capital a/c Dr 12000000