MGT401 Financial Accounting II assignment no 2 fall semester 22 December 2011
Financial Accounting II (MGT401)
Assignment # 02 Total Marks : 30
The accountant of Model Company Limited has been provided with the following information
extracted from the audited annual balance sheet of the company for the year ended as on June
30, 2010:
Authorized capital Rs.
1,000,000 Ordinary Shares of Rs. 10 each 10,000,000
Paid up capital
75,000 Ordinary Shares of Rs. 10 each 750,000
Reserves
Accumulated Profit 250,000
General Reserve 450,000
Share Premium 150,000
Total Equity 1,600,000
At the recent Annual General Meeting of the company, the Board of Directors proposed the
following businesses:
1) Capitalize a part of existing reserves by issuing fully paid bonus shares to the existing
shareholders whose name is appearing on the Register of Members as on June 31, 2010.
The board recommended issuing four bonus shares for every ten shares of Rs. 10 each
already held in the company. The bonus shares are to be issued at Rs. 14 each.
For the purpose of bonus issue, the board decided to utilize the share premium account,
Rs. 100,000 out of accumulated profits and balance out of general reserve.
2) The board also decided to offer to its existing shareholders the right to buy 2 shares at
Rs. 12 each for every 5 shares held in the company. The market price of the company’s
share is well in excess of this issued price making the issue attractive for the
shareholders. As a result all the rights were taken up.
3) At the same meeting, the board also decided to purchase back the company’s
outstanding share to the extent of 10,000 at an offered price of Rs. 12 each.
(Note): Bonus Shares and Right Shares are not entitled for each other
