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Hi, i need help how to solve this question.
Balance Sheet extract:
Share Capital
Authorised 400,000 ordinary share of $1 each – $400,000
Issued 100,000 ordinary shares of $1 each – $100,000
Capital Reserves Share Premium – $ 10,000
Capital Redemption Reserve – $ 10,000
Revenue Reserves Retained Earnings – $ 25,000The directors decided to issue 1:10 rights issue at $1.50 each.
After the rights issue, the directors decided to issue bonus issue of 1:5. It is the company’s policy to maintain its retained profits at the maximum level.
Show the balance sheet extract after the rights issue, and then show another balance sheet extract after the bonus issue.
Rights issue will be on the 500,000 shares currently held, so an additional 50,000 shares will be introduced at 1.50, of which 0.50 is the premium. So share capital will be 550k shares, share premium reserve increased to 60,000, share capital 550,000
Bonus issue will increase the number of shares, but not the capital, so total share capital will remain 550k, but number of shares will be 660,000
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