Reference no: EM133008550

Question - Accounting for Share Capital - The shares are to be issued at $4.50 per share. Federal government recently released its budget for 2021 which paints a grim picture for Australian economy due to COVID-19 pandemic. Having seen the budget Sydney Industrial Ltd decided to raise capital by making a public offer of its shares. The of Sydney Industrial notes the following.

The shares are to be paid in three instalments.

The first payment to be made on application is $1.80.

A second amount of $1.80 will be due within one month of allotment, and

The third amount of $0.90 will be due within one month of the first and final call.

Sydney Industrial Ltd will seek to issue 5 million shares. The closing date for applications is 31 August 2020. By the closing date, applications have been received for 7 million shares. To deal with the over subscription, Sydney Industrial Ltd has decided to issue shares to all subscribers on a pro-rata basis.

All amounts due on allotment are paid by the due date. The first and final call for $0.90 is made on 30 November 2020, with the amounts being due by 31 December 2020. Holders of one million shares fail to pay the amount due on the call by the due date, and on 15 January 2021 these holders have their shares forfeited. The forfeited shares are auctioned on 15 February 2021. An amount of $3.15 per share is received. The cost of holding the auction is $7,875. The shares are sold as 'fully paid'.

REQUIRED -

1. What forms of preferential treatment can the holders of preference shares receive over and above the rights of holders of ordinary shares?

2. Provide the accounting journal entries necessary to account for the transactions and events in question 3 above.