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29.4 At 1 July 20X4 a limited liability company’s capital structure was as follows:
$
Share capital 1,000,000 shares of 50c each 500,000
Share premium account 400,000
In the year ended 30 June 20X5 the company made the following share issues:
1 January 20X5:
A bonus issue of one share for every four in issue at that date, using the share premium account.
1 April 20X5
A rights issue of one share for every ten in issue at that date, at $1.50 per share.
What will be the balances on the company’s share capital and share premium accounts at 30 June
20X5 as a result of these issues?
Share capital Share premium account
$ $
A 687,500 650,000
B 675,000 375,000
C 687,500 150,000
D 687,500 400,000On 1 January they make a bonus issue of 1/4 x 1M = 250,000 shares of 50c.
Therefore share capital will increase by 250,000 x $0.50 = $125,000 and share premium will reduce by $125,000.
So they now have 1,250,000 shares in issue; the balance on share capital is $625,000 and the balance on share premium is $275,000On 1 April they make a rights issue of 1/10 x 1,250,000 = 125,000 shares.
The share capital will increase by 125,000 x $0.50 = $62,500, and the share premium will increase by 125,000 ($1.50 – $0.50) = $125,000
So the final balance on share capital is 625,000 + 62,500 = $687,500, and the final balance on share premium is 275,000 + 125,000 = $400,000.This is all explained in my free lectures on Limited Companies.
The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.(In future, if you want me to answer, then ask in the Ask the Tutor Forum – this forum is for students to help each other)
@johnmoffat said:
On 1 January they make a bonus issue of 1/4 x 1M = 250,000 shares of 50c.
Therefore share capital will increase by 250,000 x $0.50 = $125,000 and share premium will reduce by $125,000.
So they now have 1,250,000 shares in issue; the balance on share capital is $625,000 and the balance on share premium is $275,000On 1 April they make a rights issue of 1/10 x 1,250,000 = 125,000 shares.
The share capital will increase by 125,000 x $0.50 = $62,500, and the share premium will increase by 125,000 ($1.50 – $0.50) = $125,000
So the final balance on share capital is 625,000 + 62,500 = $687,500, and the final balance on share premium is 275,000 + 125,000 = $400,000.This is all explained in my free lectures on Limited Companies.
The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.(In future, if you want me to answer, then ask in the Ask the Tutor Forum – this forum is for students to help each other)
Thank you Sir.
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