The draft statement of financial position of Telin plc at 30 September 20X5 was as follows:
Preference shares of the company were originally issued at a premium of 2p per share. The directors of the company decided to redeem these shares at the end of October 20X5 at a premium of 5p per share. They also decided to write off the balances on development costs and discount on debentures (see below). All write-offs and other transactions are to be entered into the accounts according to the provisions of the Companies Acts and in a manner financially advantageous to the company and to its shareholders. The following transactions took place during October 20X5:
(a) On 4 October the company issued for cash 2,400,000 10% debentures of £I each at a discount of 21 ⁄2%.
(b) On 6 October the balances on development costs and discount of debentures were written off.
(c) On 12 October the company issued for cash 6,000,000 ordinary shares at a premium of 10p per share. This was a specific issue to help redeem preference shares.
(d) On 29 October the company redeemed the 12% preference shares at a premium of 5p per share and included in the payments to shareholders one month’s dividend for October.
(e) On 30 October the company made a bonus issue, to all ordinary shareholders, of one fully paid ordinary share for every 20 shares held.
(f) During October the company made a net profit of £275,000 from its normal trading operations. This was reflected in the cash balance at the end of the month.
(a) Write up the ledger accounts of Telin plc to record the transactions for October 20X5.
(b) Prepare the company’s statement of financial position as at 31 October 20X5.
(c) Briefly explain accounting entries which arise as a result of redemption of preference shares.