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Right and Bonus Issue

KKaren9y ago
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 Jan 20x5 A bonus issue of one share for every four in issue at that time, using the share premium account. 1 Apr 20x5 A right 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 issue. Bonus Issue: 500,000/4x1=125,000 500,000+125,000=625,000 Share Premium Account: 400,000-125,000=275,000 Right issue:1,000,000/10x1=100,000 100,000x0.50=50,000 625,000+50,000=675,000 100,000x$1=100,000 275,000+100,000=375,000 Therefore, answer should be Share Capital 675,000 and Share Premium 375,000. But my answer in the same book stated that the asnwer for Share Capital is 687,500 and Share Premium is 400,000. The amount i calculate for bonus issue is correct which is 125,000, but the amount for rights issue is wrong, correct amount for right issue is 62,500 for Share Capital and 125,000 for Share Premium.. Where did i do it wrong? isn't that the right issue is calculate by the number of shares? Thanks so much=)
John MoffatJohn MoffatTutor9y ago#1
The answer in your book is correct! The bonus issue was of 1,000,000/4 = 250,000 shares. Therefore share capital increases by 250,000 x $0.50 = $125,000, and the share premium decreases by the same amount. The number of shares now in issue is 1,000,000 + 250,000 = 1,250,000 shares. The rights issue is of 1,250,000/10 = 125,000 shares. So share capital increases by 125,000 x $0.50 = $62,500, and share premium increases by 125,000 x $1.00 = $125,000 So the final balance on share capital = 500,000 + 125,000 + 62,500 = $687,500, and the final balance on share premium = 400,000 - 125,000 + 125,000 = $400,000. My free lectures on rights and bonus issues will help you (the lectures are a complete free course for Paper F3 and cover everything needed to be able to pass the exam well).
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