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Dear Tutor,
if there are 250,000 ordinary share($1 per share ) costing $125,000 and right issue of share for 2 shares for every 5 share held in share premium account ..how should we calculate new shares?Thanks
Is this correct?
250000*2/5 = 100,000 sharesYou are correct in that if there is a rights issue of 2 shares for every 5, then there will be 100,000 new shares issued.
However, I don’t know if you have copied this from a question you have found, but if you have then you have either copied it wrongly or the question itself is silly. “a rights issue of 2 for 5 held in share premium account” makes no sense at all. Shares are not held in the share premium account. The share premium account is credited with any money paid for the shares in excess of their nominal value (the nominal value is credited to the share capital account).
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