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Good afternoon! Could somebody explain how the 5/7 ratio was calculated in regards to preparation of Statement of changes in equity? Thank you in advance!
Here is extract from Answer sheet:
The number of shares prior to the 2 for 5 rights issue was 160 million (56,000 x 4 (i.e. 25 cents shares) x 5/7). Therefore the rights issue was 64 million shares at 60 cents each, giving additional share capital of $16 million (64 million x 25 cents)
and share premium of $22·4 million (64 million x (60 cents – 25 cents))
If you are allowed to by 2 shares for every 5 that you own, then you start with 5, add 2, and that gives you 7
Hence the fraction 5/7