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Hi ,
Would you be able to assist me with the question below :
At 31 December 2004 a company’s capital structure was as follows:
$
Ordinary share capital
(500,000 shares of 25c each) 125,000
Share premium account 100,000In the year ended 31 December 2005 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 31 December 2005 Ordinary share capital and Share premium account ?Thank you in advance & i hope to hear from you soon 🙂
The rights issue is of 250,000 shares. So 250,000 x 0.25 = 62500 goes to share capital, and 250,000 x 0.75 = 187500 goes to share premium.
There are now 750,000 shares in issue.
The bonus issue of of 1/5 x 750,000 = 150,000 shares. So 150,000 x 0.25 = 37,500 goes to share capital, and 37,500 is subtracted from share premium
So share capital at end is 125,000 + 187,500 + 37,500
and share premium at end is 100,000 + 187,500 – 37,500.
@John Moffat thank you very much 🙂
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Why Share Capital is not 125,000 + 62,500 + 37,500 ?
@tugce share capital is 125,000 + 62,500 + 37,500 it is shown in the workings above , i believe it is just a typo error 🙂
I hope this helps & have a nice day 🙂
Hi could you assist
At 30th June 20×5 the capital and reserves were:
Ordinary share of $1 each 100m
Share Premium 80During the year 30 June 2006 the following took place:
1st September 20×5 a bonus issue of shares for every two held, using the share premium account1st January 20×6 a fully subscribed rights issue of two ordinary shares for every five held at that date a $1.50 per share
What would be the ballance on each account on 30 June 20×6
Firstly, have you watched my free lectures on this? (Because I work through very similar examples in my lectures).
Secondly, please do not simply set test questions and expect answers. You must have an answer in the same book in which you found the question, and so you should ask about which bit of the answer you are confused on.The bonus issue will be of 50M shares (so there are then 150M shares), and so share capital increases by $50M and share premium decreases by $50M.
The rights issue will be of 2/5 x 150M = 60M shares, and so share capital increases by another 60M and share premium increases by 30M.
when we calculated the share premium at end why did we subtract 37,500? I would really appreciate your answer and thank you in advance
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