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Q) At 30 September 20X2, the trial balance of cavern includes the following balances:
$’000
Equity Shares of 20c each 50,000
Share premium 15,000Cavern has accounted for a fully-subscribed rights issue of equity shares made on 1 April 20X2 of one new share for every four in issue at 42 cents each. This was the only share issue made during the year.
What were the balances on the share capital and share premium accounts at 30 September 20X1?
Answer-
$’000
share capital 40,000
Share premium 4,000Please explain how we derive this answer.
Thanking you in advance.
I have understood that we have to find how much shares we holded before the right issue. But How do we get the figure 50m shares issued newly ?? Please show the calculation to get that 50 million share and brought forward value of 200 million share.
If the share capital at 30 September, 20X2 is $50,000 worth of 20 cent equity shares and the share premium at 30 September, 20X2 was $15,000 …
… and this is AFTER accounting for a 1 for 4 rights issue at 42 cents …
…then the share capital account BEFORE accounting for that 1 for 4 rights issue must have been $40,000 so that, AFTER accounting for it, the balance on the share capital account would rise to $50,000
That means that $10,000 worth of 20 cent shares were issued and that means 50,000 shares with a nominal value of 20 cents each were issued as a rights issue at 42 cents each
That also means that the surplus over the nominal value is 22 cents per share and 50,000 shares at a premium of 22 cents has a value of $11,000
The brought forward figure + $11,000 =, according to the trial balance, $15,000
Therefore the balance on the share premium account at the start of the year must be $15,000 – $11,000 raised on the new issue of 50,000 shares
The share capital at the start of the year must have been $40,000, as explained above
That is the nominal value of a number of shares worth 20 cents each
So the brought forward number of shares in the share capital account must be 200 million shares of 20 cents each with a nominal value of $40,000
Is that better?
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