Company accounts…..plz show ur workings

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    queeenshana
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    • Topics: 25
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    At 30th June 2005 the capital reserves of Smith, a limited liability company were:
    $m
    Share capital
    Ordinary shares of $1 each 100
    Share premium account 80

    During the year ended 30th June 2006, the following transaction took place:
    1 September 2005 A bonus issue of one ordinary share for every
    two held, using the share premium

    1 January 2006 A fully subscribed rights issue of two ordinary
    shares for every five held at that date; at
    $1.50 per share
    What would the balances on each account be at 30 June 2006?

    share capital share premium
    a.) $210 $110
    b.) $210 $60
    c.) $240 $30
    d.) $240 $80


    Avatar of Najiya
    Najiya
    Participant
    • Topics: 1
    • Replies: 96

    Answer is (b).

    {All figures in millions }
    No.of shares as on 30th June 2005 is $100/$1 = 100 shares.

    On 1 Sept 2005
    Bonus Issue
    (100/2)*1 = 50 shares.
    50 shares * $1 = $50
    Entry is:
    Dr. Share Premium $ 50
    Cr. Share Capital $ 50

    On 1 Jan 2006
    No. of shares on this date is 100 + 50 = 150 shares.

    Rights Issue
    (150/5)*2 = 60 shares.
    60 shares * $ 1.50 = $90
    Only $1 per share goes to the share capital. Balance of $0.50 per share goes to the share premium.
    $1 * 60 = $60
    $0.50 * 60 =$30
    total $90
    Entry is:
    Dr. Cash/Bank $90
    Cr. Share Capital $60
    Cr. Share Premium $30

    Share Capital as on 30th June 2006
    $100(opening balance) + $50(bonus issue) + $60(rights issue) = $210
    Share Premium as on 30th June 2006
    $80(opening balance) – $50(bonus issue) + $30(rights issue) = $60

    Hope that helps

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