Question

The authorised capital of Avery Ltd. is ₹ 70,00,000 divided into 5,00,000 equity shares of ₹ 10 each and 2,00,000, 10% preference shares of ₹ 10 each. All the shares were issued and fully paid up. On 1st April, 2021 the company had a balance of profit ₹ 2,00,000 brought forward from the previous year. The net profit of the company for the year ended 31st March, 2022 amounted to ₹ 9,00,000.

The director’s proposed to:

1. transfer ₹ 1,00,000 to General Reserve;
2. pay the dividend of 12% on equity shares;
3. pay the year’s dividend on preference shares;
4. carry forward the remaining balance.

You are required to show how the items would appear in the Balance Sheet of the Company and prepare ‘Notes to Accounts’.

Answer 1

Balance Sheet (Extract) as at 31st March, 2022.
Particulars	Note No.	₹
I. EQUITY & LIABILITIES:
1. Shareholders’ Funds:
(a) Share Capital	1	70,00,000
(b) Reserves and Surplus	2	8,40,000
Total		78,40,000

Notes to Accounts:

Note 1: Share Capital:

Particulars	₹
Authorised Capital:
5,00,000 Equity Shares of ₹ 10 each	50,00,000
2,00,000 10% Preference Shares of ₹ 10 each	20,00,000
	70,00,000
Issued, Subscribed & Fully Paid-up:
5,00,000 Equity Shares of ₹ 10 each	50,00,000
2,00,000 10% Preference Shares of ₹ 10 each	20,00,000
	70,00,000

Note 2: Reserves and Surplus:

Particulars	₹
General Reserve:
Transfer during the year	1,00,000
Surplus in Statement of Profit & Loss:
Balance brought forward (1.4.2021)	2,00,000
Add: Net Profit for the year	9,00,000
Less: Transfer to General Reserve	(1,00,000)
Less: Equity Dividend (12% of ₹50,00,000)	(6,00,000)
Less: Preference Dividend (10% of ₹20,00,000)	(2,00,000)
Closing Balance of Surplus	2,00,000
Total	8,40,000