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At 30th June 2005 the capital reserves of Smith, a limited liability company were:
$m
Share capital
Ordinary shares of $1 each 100
Share premium account 80During the year ended 30th June 2006, the following transaction took place:
1 September 2005 A bonus issue of one ordinary share for every
two held, using the share premium1 January 2006 A fully subscribed rights issue of two ordinary
shares for every five held at that date; at
$1.50 per share
What would the balances on each account be at 30 June 2006?share capital share premium
a.) $210 $110
b.) $210 $60
c.) $240 $30
d.) $240 $80Answer is (b).
{All figures in millions }
No.of shares as on 30th June 2005 is $100/$1 = 100 shares.On 1 Sept 2005
Bonus Issue
(100/2)*1 = 50 shares.
50 shares * $1 = $50
Entry is:
Dr. Share Premium $ 50
Cr. Share Capital $ 50On 1 Jan 2006
No. of shares on this date is 100 + 50 = 150 shares.Rights Issue
(150/5)*2 = 60 shares.
60 shares * $ 1.50 = $90
Only $1 per share goes to the share capital. Balance of $0.50 per share goes to the share premium.
$1 * 60 = $60
$0.50 * 60 =$30
total $90
Entry is:
Dr. Cash/Bank $90
Cr. Share Capital $60
Cr. Share Premium $30Share Capital as on 30th June 2006
$100(opening balance) + $50(bonus issue) + $60(rights issue) = $210
Share Premium as on 30th June 2006
$80(opening balance) – $50(bonus issue) + $30(rights issue) = $60Hope that helps
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