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Please help me to solve the following question with explanation. I don’t know how to get rights issue shares & bonus issue shares from answer.
Question: At 30 June 20×2, a company’s structure was as follows:
Ordinary Share Capital $
500,000 shares of 25c each 125,000
Share Premium Account 100,000
In the year ended 30 June 20×3 the company made a rights issue of 1 share for every 2 held at $1 per share and this was taken up in full. Later in the year the company made a bonus issue of 1 share for every 5 held, using the share premium account for the purpose.
What was the company’s capital structure at 30 June 20×3?Answer:
Ordinary Share $ Share Premium $
Opening Balance 125,000 100,000
Rights Issue 250,000 x 25c 62,500 250,000x75c 187,500
Bonus Issue 150,000 x 25c 37,500 150,000x75c (37,500)The rights issue is 1/2 x 500000 shares = 250,000 shares.
To share capital goes 250,000 x 0.25 = 62,500; to share premium goes 250,000 x 0.75 = 187,500.There are now 750,000 shares in issue.
The bonus issue is 1/5 x 750,000 = 150,000.
Share capital increases by 150000 x 0.25 = 37,500; share premium decreases by 37,500.Hope that helps! 🙂
Rich T is a limited liability company with 200,000 25c shares in issue.At 1 JAN the balance on the share premium account is $75,000.The following transaction occur in the year ended 31 Dec 2006:
31 Jan there is a fully taken up 2 for 5 right issues.The issue price is $1.80.
12 Aug there is a 1 for 10 bonus issue made using the share premium account.
What are the balances on the share capital and share premium accounts on 31 Dec 2006
Answer;- 77,000 for Share capital and 192,000 for share premium
I noticed how you solved it in the question above could you explain like that I wouldn’t have asked for this question but there is this line ;-
The issue price is $1,80 which had confused meSo I am sorry in advance for repeating a similar question
I will answer, but in future please ask in the F3 Ask the Tutor Forum if you wish me to answer. This forum is for students to help each other.
If shares are issued at $1.80, then this is the cash that is received. The nominal value (in this case $0.25) is credited to the share capital account, and the extra (in this case $1.55) is credited to the share premium account.
(Just as in the previous question above, when the issue price was $1, the nominal value of $0.25 went to share capital and the extra $0.75 went to share premium)
I do suggest that you watch the free lecture on Company Accounts where issue of shares, rights issues and bonus issues are explained in full.
Branch “A” in Lagos sent goods worth N50,000 to branch “B” at Otueke in Balyelsa, the goods were hi-jacked by Boko- Haram. State the required Accounting entries necessary to record these transactions.
1. Branch accounting is not in the syllabus for Paper F3
2. This has absolutely nothing to do with rights issues and bonus issues, so why on earth have you posted it here?
thank you very much it really helps .. was puzzle about the bonus issue .. but the explanation helps. once again thanks .
Please can someone help me with the below question 🙂
Able PLC is raising finance through a rights issue and the current ex dividend market price of its shares is £2.50.
The rights issue is on a 1 for 4 basis and the new shares will be offered at a 20% discount to the current market price.
Mr Smith is an investor who owns 20,000 shares of Able PLC.Using the information provided discuss the effects of the proposed rights issue on the personal wealth of Mr Smith (calculations are required)
thank you in advance for any help provided 🙂
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