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X Co has the following capital structure:
400,000 ordinary shares of 50c $200,000
Share premium account $70,000
Retained earnings $230,000
Shareholders’ equity $500,000Show its capital structure following:
(a) A ‘1 for 2’ bonus issue
(b) A rights issue of ‘1 for 3’ at 75c following the bonus issue, assuming all rights taken up.(a)previous number of shares 400,000. Thus 200,000 new shares.
600,000 ordinary shares of 50c = $300,000 (previous $200,000 + new $100,000 (200,000 shares @ 50c))
Share premium account $0 (if bonus issue was for the cost of share premium – accountant need to deduct $100,000, but has only $70,000 in share premium a/c)
Retained earnings $200,000 ($230,000 – $30,000 need to be deducted rest of $100,000)
Shareholder’s equity $500,000(b) previous 600,000 shares. Thus 200,000 new shares.
800,000 ordinary shares of 50c = $400,000 (previous plus $100,000 additional 200,000 shares @50c)
Share premium account $50,000 (additional 200,000 shares @25c – difference between price 75c and nominal value 50c)
Retained earnings $200,000
Shareholder’s equity $650,000
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