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Right and Bonus Issue

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › Right and Bonus Issue

  • This topic has 1 reply, 2 voices, and was last updated 8 years ago by John Moffat.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • October 9, 2016 at 9:02 am #342779
    karenleehaha
    Member
    • Topics: 4
    • Replies: 6
    • ☆

    Share Capital 1,000,000 shares of 50c each 500,000
    Share Premium Account 400,000
    In the year ended 30 June 20×5 the company made the following share issues:

    1 Jan 20×5
    A bonus issue of one share for every four in issue at that time, using the share premium account.
    1 Apr 20×5
    A right issue of one share for every ten in issue at that date, at $1.50 per share.
    What will be the balances on the company’s share capital and share premium accounts at 30 June 20×5 as a result of these issue.

    Bonus Issue: 500,000/4×1=125,000
    500,000+125,000=625,000
    Share Premium Account: 400,000-125,000=275,000

    Right issue:1,000,000/10×1=100,000
    100,000×0.50=50,000
    625,000+50,000=675,000
    100,000x$1=100,000
    275,000+100,000=375,000

    Therefore, answer should be Share Capital 675,000 and Share Premium 375,000.

    But my answer in the same book stated that the asnwer for Share Capital is 687,500 and Share Premium is 400,000. The amount i calculate for bonus issue is correct which is 125,000, but the amount for rights issue is wrong, correct amount for right issue is 62,500 for Share Capital and 125,000 for Share Premium..

    Where did i do it wrong? isn’t that the right issue is calculate by the number of shares?

    Thanks so much=)

    October 9, 2016 at 10:38 am #342782
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54664
    • ☆☆☆☆☆

    The answer in your book is correct!

    The bonus issue was of 1,000,000/4 = 250,000 shares.
    Therefore share capital increases by 250,000 x $0.50 = $125,000, and the share premium decreases by the same amount.
    The number of shares now in issue is 1,000,000 + 250,000 = 1,250,000 shares.

    The rights issue is of 1,250,000/10 = 125,000 shares.
    So share capital increases by 125,000 x $0.50 = $62,500, and share premium increases by 125,000 x $1.00 = $125,000

    So the final balance on share capital = 500,000 + 125,000 + 62,500 = $687,500, and the final balance on share premium = 400,000 – 125,000 + 125,000 = $400,000.

    My free lectures on rights and bonus issues will help you (the lectures are a complete free course for Paper F3 and cover everything needed to be able to pass the exam well).

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