TUTORIAL: EQUITY PART 2

Question 2 ( MMLS)

Jacob Bhd had the following shareholders’ equity accounts on 1 January 2018. Ordinary shares
(par value-RM5) RM500,000,000. Share premium RM200,000,000 and retained earnings
RM100,000,000. In 2018, the company had the following treasury shares transactions.

Mar 1 Purchased 5,000,000 shares at RM9 per share

June 1 Sold 1,00,000 shares at RM12 per share
Sept 1 Sold 2,000,000 shares at RM10 per share
Dec 1 Sold 1,000,000 shares at RM6 per share

a. Show the journal entries for the above transactions.

b. Prepare a shareholders’ equity section as at 31 December 2018.

Answer
a)
Date Accounts Title Debit (RM) Credit (RM)
2018 Treasury shares
Mar 1 (5,000,000 × *9) 45,000,000
Cash 45,000,000
June 1 Cash (1,000,000 × 12) 12,000,000
Treasury shares 9,000,000
Premium shares
(1,000,000 × *3) 3,000,000
Sept 1 Cash (2,000,000 × 10) 20,000,000
Treasury shares 18,000,000
Premium shares
(2,000,000 ×*1) 2,000,000
Dec 1 Cash (1,000,000 ×6) 6,000,000
Premium shares 3,000,000
( 1,000,000×*3)
Treasury shares 9,000,000

*RM9 is par value

* RM 3 = RM12 –RM 9
* RM 1 = RM 10 – RM 9
*RM 3 = RM 9 – RM6
b)
Date Accounts Title Debit (RM) Credit (RM)
Dec 31 Income Summary 100,000,000
Retained Earnings 100,000,000
Question 2 (Textbook)
Answer:
a) - Share buyback cannot be 15% of the market price for the last 5 days.
- Public shareholders must be at least 25%.
- Share repurchase cannot be more than 10% issued and paid up capital
*For more info please visit bursa Malaysia website and under listing
b) Requirement of companies act 1956
- Not withstanding section 67, a public company with a share capital may, if so authorized by its
articles, purchase its own shares.
- A company shall not purchase its own shares unless:
1) It is solvent at the date of purchase and will not be insolvent by incurring debts involved in
the obligation to pay shares.
2) The purchase is made through stock exchange on which the shares of the company are
quoted in accordance with relevant to the rules.
3) The purchase is made in good faith and in interest of the company.

b)
Keep shares as treasury shares
Date Accounts Title Debit (RM) Credit (RM)
2014
Dec 31 Treasury shares 93,600,000
Cash (18,000,000 × 5.2) 93,600,000

Cancelled all purchased item

Date Accounts Title Debit (RM) Credit (RM)
2014
Dec 31 Share capital (18,000,000×0.5) 9,000,000
Share premium
(220,000,000×0.4)
*(0.9- 0.5) 88,000,000
Retained earning 5,600,000
Cash (18,000,000×0.5) 9,000,000
Capital redemption reserve
(18,000,000×5.2) 93,600,000
c) i)
Date Accounts Title Debit (RM) Credit (RM)
2014
Mar 25 Cash (8,000,000×7.1) 56,800,000
Treasury shares
(8,000,000×5.2) 41,600,000
Share premium
(8,000,000×1.9) 15,200,000
ii) Statement of Financial Position
Issued and paid up capitals
RM RM
220,000,000 units of Ordinary Share Capital,
RM 0.5 110,000,000
Reserves
Share Premium ( 88,000,000 + 15,200,000) 103,200,000
Retained Earnings 370,000,000 473,200,000
Less: Treasury shares
(93,600,000 – 41,600,000) (52,000,000)
Shareholders’ equity 635,200,000

Question 3

a) i)
Date Accounts Title Debit (RM) Credit (RM)
Treasury share 12,000,000
Bank (10,000,000×1.2) 12,000,000
Share premium 60,000
Cash 60,000

ii) Statement of Financial Position

Issued and paid up capital
RM RM
60,000,000 units of Ordinary Shares Capital of
RM 1 60,000,000
Reserves
Shares Premium (8,000,000 – 60,000) 7,940,000
Retained Earnings (10,000,000 + 1,200,000) 11,200,000 19,140,000
Less: Treasury shares (10,000,000 × 1.2) (12,000,000)
Shareholders’ equity 67,140,000

b)
i) RM 1.00 per unit
Date Accounts Title Debit (RM) Credit (RM)
2015
Dec 31 Cash (10,000,000 × 1) 10,000,000
Share premium 2,000,000
 Treasury shares 12,000,000

ii) RM 1.50 per unit

Date Accounts Title Debit (RM) Credit (RM)
2015
Dec 31 Cash (10,000,000 × 1.5) 15,000,000
Share premium 3,000,000
Treasury shares (10,000,000 × 1.2) 12,000,000

c) Bonus
Date Accounts Title Debit (RM) Credit (RM)
2015 Share premium
Dec 31 *from the statement 7,940,000
Retained Earnings 4,060,000
Treasury shares 12,000,000

*Internal fund = Share premium and Retained earnings

d) Cancelled
Date Accounts Title Debit (RM) Credit (RM)
Share capital (10,000,000×1) 10,000,000
Share Premium 7,940,000
Retained Earning 4,060,000
Cash 12,000,000
Capital redemption reserves 10,000,000

*Share capital always calculate with par value