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Dear Sir,
I am confused over this Issue matters.
I aware both share issue using weighted average method but could understand the model answer given.
Please help.
Thank you.Question 2:Jun 2014 exam question:
Year ended 31 Mar 2014
Equity share $0.25 each – Trial balance showed $56,000,000 Cr.
Share Premium – TB showed $25,000,000 Cr.
On 1 Aug 2013, fully subscribed rights issue on two new shares at $0.60 each for every five shares held. Market price of shares before issue $1.02
The issue has been fully recorded in Trial BalanceAre the any chapter in Open Tuition i can read up? or other materials i can refer?
Ok, here’s how to calculate the rights fraction. Because it’s impossible to set the answer out in as neat and understandable way as on a tablet or screen, I shall separate the columns with a “#” sign
You need 3 columns
“Number” # “Value” # and “Extension”
5 (shares to start with before the rights issue) # 1.02 (value per share) # 5.10 value of investment
2 (shares per five held) # .60 (exercise price for each share under the rights issue) # 1.20 (value of additional investment)
7 shares (now held, after the rights issue) # ????? (theoretical ex-rights price per share) # 6.30 (total value of investment for 7 shares)
That means that the theoretical price per share AFTER the rights issue is $6.30/ 7 shares = 90 cents per share and that, in turn, gives us a rights fraction of 1.02/.90
Can you now put this into the weighted average table?
5 columns needed:
Date # Number # Period # Fraction # Wanes (weighted average number of equity shares)
1.4.13 # 160m # 4/12 # 1.02/.90 # 60,444,444
1.8.13 # 224m # 8/12 # – # 149,333,333Wanes = 60,444,444 + 149,333,333
= 209,777,777Does all that make it any clearer?
Dear Sir,
1st Aug 2013: 56,000,000 divide $0.25 = 224m shares as at 1st Aug 2013.
How to get 160m of shares on 1st April 2013?
Thank youThe rights issue was 2 for 5 and has already been recorded. The “after-recorded” figure is $224 and that’s x*7/5 so “x” must $160 which when multiplied by 7/5 is $224
Is that better?
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