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  1. Goodnight to everyone.

    Chapter 13 Test Q#2 .
    Looking at the answer at the back of the book. I undertake up $225,000: I dont understand why 500, 000 is multiplied by ,75. Can any shed some light

      • Hi, I have another question related to Test Q2 – it says that the bonus issue was “later in the year” and the question itself is what is the company’s capital structure on 31. Dec 2005 – so why does the answer include this bonuss issue if it was after 31.Dec?

      • At the beginning of the question you are given the balances at 31 December 2004.

        You are then told what happened during the year ended 31 December 2005. There was a rights issue, and later in the year there was a bonus issue. The bonus issue was therefore made later in the same year i.e. during the year ended 31 December 2005.

    • (all the figures below are in millions!)

      First they have a 1 for 2 bonus issue. As there are currently 100 shares in issue, this means that they issue another 50 shares (so the total number of shares is now 150).
      Since they are $1 shares, the share capital increases by the nominal value of 50 to a total of 150. Because it is a bonus issue, the share premium reduces by 50 to 30.

      Then they have a 2 for 5 rights issue. As there are 150 shares in issue after the bonus, this means that they issue another 2/5 x 150 = 60 shares.
      The share capital increased by the nominal value of 60 to a total of 210.
      The share premium increases by the excess of the amount paid above the nominal value – i.e. 60 shares at 0.50 = 30. The balance was 30 after the bonus issue so it increases by another 30 to a total of 60.

  6. Test Q 4 – The answer per the notes is D (dividends dont appear on the Income Statements or Bal. Sheet. I know they dont appear on the Income Statement, but I was pretty sure dividends form part of the retained earnings? So why is the answer nil in this case? Thanks in advance.

    Oh, and lectures are a really great help. Many thanks!

    • @mohammadbangash, The lecture makes it clear at the beginning that it will not read the course notes to you – you must read them properly yourself.
      Ordinary and preference shares are dealt with in paragraph 4 of the notes; loan stock is dealt with in paragraph 8; and revaluation surplus is dealt with in paragraph 6 (and also in the earlier chapter on depreciation).

  9. great lecture!!!!!!!!!
    can somebody help me with the following qns
    how do we treat rights issue, if their payment consideration is below nominal value e.g if nominal value is $2/share and there is a rights issue at $1/share

    • @hwaliji, It would actually be illegal to issue shares – whether an original issue or a further rights issue – for an amount less than their nominal value! They can be – and invariably will be – issued at a price which represents a discount on their market value, but NEVER at a discount on nominal value

  17. this has been explained very well indeed.. The best part about this video is that incase you didn’t understand something the first time you can always go back and confirm it

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