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When a company makes a rights issue of equity shares which of the following effects will the isue have?
1 Assets are increased
2 Retained earnings are reduced
3 Share premium account is reduced
4 Investment are increased
? 1 only
? 1 and 2
? 3 only
? 1 and 4
The Correct answer is 1st option ( 1 only).
But I don’t understand why not the last option (1 and 4). Investment is increased because share equity increased so why not?
Correct answer is
Share capital issued by the company is not called an investment.
An investment would be if the company had bought shares in another company which is not the case here.
Thank you very much.
You are welcome 🙂