June 2012 Question on Fresco

“The following trial balance relates to Fresco at 31 march 2012.” – what date was the rights issue?

Correct! So how many shares were there in issue before the rights issue?

Silly me! I hadn’t read the full question carefully enough

There is a suspense account …. “The suspense account represents the corresponding credit for cash received for a fully subscribed rights issue of equity shares made on 1 january 2012. The terms of the share were one new share for every five held at a price of $0.75 each” … and this has been credited with the share capital and related share premium from the rights issue

So the figure given for share capital has NOT been adjusted for the rights issue

therefore the rights issue of 1 for 5 results in an issue of 90 million / 5 = 18 million shares of 50 cents each at an exercise price of 75 cents

the correct double entry should have been

Dr Cash Account 18 million x 75 cents = $13,500,000
Cr Share Capital Account 18 million x 50 cents = $9,000,000
Cr Share Premium Account 18 million x (75 cents – 50 cents) = $4,500,000

I apologise for not reading the question carefully enough – it’s just that I had immediately before your post answered a similar question where the “trick” was to realise that the trial balance figure was POST the reflection of the rights issue

Are you ok now?

Hi,

You cannot do the 1/5 calculation as the shares have already been issued. In effect you are working backwards to work out the number of shares issued.

Thanks