June 2012 Question on Fresco

"The following trial balance relates to Fresco at 31 march 2012." - what date was the rights issue?

Rights issue was on 1 january 2012. Means the 90m shares($45m/$0.50) is the number of shares after rights issue right?

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

The answer i got for No. Of shares before RI is 75m. But the answer key states that the number of shares b4 rights issue is 90m. And the number of shares after rights issue is 108m. Very confusing.

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 sir, I want to know that why u did 90000*1/5?. Can we do 90000*6/5?.. Can you please explain me. Thanks in advance

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