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Dear Mike,
iii, On 1 August 2003 Xytol made a fully subscribed right issue of equity share capital based on two new shares at 60 cents for every 5 shares held. The issue has been fully recorded in the trial balance figures.
v, An equity dividend of 4 cents per share was paid on the 30 May 2003 and after the right issue a further dividend o 2 cents was paid on the 30 Nov 2003.
TB figures:
Equity shares 25c each 56000
share premium 25000Solution:
Before right issue: 56000*1/25*5/7= 160m*4c
After right issue: 56000*1/25*2cWhere is that 5/7 coming from?
Could you please help?Many thanks,
Kind regards,
KatalinWhat you have failed to tell me is the market price of the shares immediately before the rights issue!
However, a 2 for 5 rights issue means that for every 5 shares that you used to own, following taking up the rights of 2 for 5, you now have 7 shares
So you now have 7 when previously you had 5
So if you now have 70 shares, how many did you have before the rights issue?
And if you now have 56,000 shares, how many did you have before the rights issue?
The answer is arrived at each time by “grossing down” your current holding
7 * 5/7 means you used to have 5
70 * 5/7 means you used to have 50
56,000 * 5/7 means you used to have 40,000
OK?
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