Assume a Vat rate of 14%.
Assume an income tax rate of 28% and dividend tax rate of 15%.
Stress Management Limited was incorporated in 1996. The company is an engineering company that develops and sells a variety of electronic goods. The company is a registered VAT vendor and has a November year-end. The financial director provides you with an extract of the financial statements and some information about financial transactions entered into during the current financial year.
Stress Management Limited
Extract from the Statement of financial position as 30 November 2004
Share capital-Class A ? 1 800 000
Retained earnings(profits) ? 10 500 000
Extract from notes to the Statement of financial position as at 30 November 2004 Class A shares have voting rights, with no fixed distribution. Class B shares have no voting rights, and a fixed dividend of 12% on a face value of R1.
a) Authorised class A share capital consists of 200 000 shares. There was only one share issue, in 1996, at a price of R6 per share. However, during the financial year, the company decided to fund expansion with equity and offered 100 000 class A shares to the public on 1 February 2004.These shares were offered at a price of R5 per share. The applications closed on 31 March 2004 and the minimum capital amount was stated in the prospectus at R350 000. At the closing date 85 000 shares had been applied for by the public. The share were issued on 30 April 2004.Share issue costs amounting to R262 000(VAT inclusive) were incurred on credit on 1 March 2004.
b) Authorised Class B share capital consists of 400 000 shares. There was only one issue of class B shares, in 1998, at an issue price of R6. At 30 November 2003, the ratio of class A to class B shares is 1:5.
c) On 1 May 2004, the directors declared a class A dividend of 50 cents per share. All dividends declared were paid cash on 31 December 2004.Theses were the only dividends declared during the 2004 financial year. If dividends are to be declared by Stress Management Limited, It is company policy to do so on 1 May of the financial year.
d) The profit before taxation expense for the year ended 30 November 2004 amounted to R14 600 000.
e) Taxable income for the year ended 30 November 2004 amounted R9 800 000.
f) Stress Management Limited had not received dividends during the 2004 financial year.
You are required to:
1.1 Prepare ALL the general journal entries to record the issue of the class A shares. Refer to additional information point 1. (14 marks)
1.2 Prepare the general journal entry(ies) required in respect of share issue costs. Dates must be shown. Narrations are not required. (22 marks)
2.1 Calculate the total dividends declared on May 2004. Refer to additional information points (b) and (c). (16 marks)
2.2 Prepare ALL the general journal entries required to record the transactions relating to dividends for the year ended 30 November 2004. (20 marks)
3. Calculate the total tax expense that would appear in the statement of comprehensive income of Stress Management Limited for the end 30 November 2004. Show all workings. (10 marks)
4. Prepare the Equity section of the statement of financial position of Stress Management Limited for the year ended 30 November 2004, after taking into consideration the additional information points(a) – (f) above. (18 marks)