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hello, i was doing the kaplan revision kit and i need help with a question as i do not know how the answer arrived of 107,500
at 1st oct 20X6, K’s capital structure was as follows:
ordinary share 25c 100,000
share premium 30,000on 10 jan 20X7, in order to raise finance, K made a 1 for 4 rigths issue at $1.15. The issue was fully taken up. This was followed by a 1 for 10 bonus issue on 1 june 20X7.
what was the balance on the share premium account?
so here, i thought you have to do 100,000 x 1/4 to get the value e.g A then x by nominal value to get share c. share p the diff (1.15-0.25) x A. and then cash 1.15 x A.
and then add those shares made in rights issue to original and x by 1/10 to get B. then B x nominal value 0.25 for share p and share c to produce the dr and cr for the bonus issue entry.
i don’t see where i’m going wrong?
Because the shares are 25c shares, there are currently 400,000 shares (400,000 x 0.25 = $100,000).
The rights issue is therefore of 100,000 shares. The share premium is $0.90 (1.15 – 0.25) per share and so the total share premium increases by $90,000 to $120,000.
There are then 500,000 shares in issue, to the bonus issue is of 50,000 shares of $0.25. So the share premium account reduces by $12,500 (50,000 x 0.25) to $107,500.
Have you watched my free lectures on this? The lectures are a complete free course for Paper F3 and cover everything needed to be able to pass the exam well.
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