Calculate the retained profit, Cost Accounting

Assignment Help:

Harriet Ltd is a trading company set up a number of years ago with 5,000 £1ordinary shares issued at par. In order to expand the production facilities it needs to raise a further £150,000.

There are two possibilities:

(1) The company will issue further £150,000 5% preference shares, which have a nominal value of £1and a market value of £1 each.

(2) £150,000 loan notes will be issued at par. This will carry interest of 5% payable annually.

Requirements:

I. Calculate the retained profit for the year ended 31 December 2011 on the assumption that:

The shares or loan notes will be issued on 1 January 2011
A full year's preference dividend will be paid in the year
No dividend is paid on the ordinary shares in the year
The profit before interest, tax and dividends is £210,000.

II. Calculate the net return for the investor on the assumption that :

The investor is a company that pays tax at 26%
The investor is an individual who is a higher rate taxpayer.

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