Page 122 - Accountancy_F5

Exercise 4.1 Usually, the dividend is paid to the owner,
On 1 March 2023, Msasa Ltd purchased whose name appears on the share certificate
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3,000 ordinary shares of Chata Plc of of the company when the payment is done
TZS 1,000 each at TZS 4,500,000. On regardless of how long he/she has owned
1 July 2023 Chata Plc gave the existing the ordinary shares. This highlights the
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FOR ONLINE READING ONLY
shareholders a right to buy 1 new share importance of such an agreement between
for every 2 shares held at TZS 900. Msasa the seller and the purchaser. The agreement
Ltd exercised the right to buy new shares. can give out two possible transaction prices:
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On 31 October 2023, Chata Plc decided The cumulative dividend (Cum-Div.) and
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to capitalise a part of its reserve, hence excluding dividend (Ex-Div.) prices. The
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issued 1 bonus share for every 10 shares same concept applies to fixed income
held by existing shareholders. On 15 security’s price quotations discussed earlier
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December 2023, Msasa sold 1,000 shares whose examples are also relevant to this
at a market price of TZS 1,800 each. section.

Required: Record the transactions in the Cum-div price quotation
investment account of Msasa Ltd. The cum-div quotation refers to the price
which considers the portion of the dividend

Acquisition and disposal accrued to the transaction date. It is higher
of ordinary shares under than the normal price because it incorporates
different quotations accrued dividends. The purchase price
the buyer pays does include the dividend
An investor can decide to buy ordinary accrued to the time of the transaction. Thus,
shares at any time provided that he/she the capital cost is obtained after deducting
has capital. Meanwhile, the value of an interest accrued from the purchase price
ordinary share differs with time, from when (see example 4.8). Therefore, an investor
the dividend has just been paid to another who buys a stock at such dividend inclusive
dividend payment date because its return price, he/she also pays for the right to
accrues as time goes on. Therefore, the receive the accrued dividend. In this case,
time at which an investor decides to buy an investor is required to split the amount
common stock can have an impact on the paid into the normal price (capital) and
transaction price. dividend (income) aspect in the books of

When an investor buys ordinary shares, accounts that is the investment account.
he/she will be entitled to receive the next The same consideration is made when an
dividend unless it is agreed at the time of sale investor disposes-off the common stock at
as to who should receive the next instalment. cum-div price.

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