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accounting for limited compony

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › accounting for limited compony

  • This topic has 2 replies, 2 voices, and was last updated 6 years ago by John Moffat.
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  • October 20, 2015 at 7:58 am #277751
    ahmedmowla
    Member
    • Topics: 1
    • Replies: 1
    • ☆

    sir please explain how to get the right answer?
    A UK private company has one million ordinary shares of £1 nominal value. Their estimated value as an investment is £2.20 each. The company wishes to raise a further £600,000 from a rights issue.
    The directors decide to offer the new shares at £2.00 each to the existing shareholders and estimate that 60% of the shares offered will be bought.
    Which of the following rights issues should be offered?
    (a) 1 for 2

    (b) 2 for 5

    (c) 3 for 4

    (d) 3 for

    October 20, 2015 at 11:42 am #277793
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51563
    • ☆☆☆☆☆

    If they are issuing shares at $2 each, then they need to sell 600,000/2 = 300,000 shares.

    Since only 60% of the shares will be bought, it means they actually need to offer 300,000/60% = 500,000 shares,

    There are currently 1M shares in issue, to the right issue must be 500,000 for 1M, or 1 for 2.

    June 9, 2016 at 8:37 am #321353
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51563
    • ☆☆☆☆☆

    If only 180,000 shares were bought, then they would only raise 180,000 x $2 = $360,000.

    The question says that they want to raise $600,000!

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