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Hi
I am currently struggling with rights issue on the past paper Xtol, I have noticed similiar questions crop up on other questions – can someone point me in the right direction for study help,
I am struggling to find similar in the Kaplan/BPP text or maybe I am not looking properly.The quesion Xtol gives the year end share capital and premium in the trial balance and you need to work the question back to give the opening balances.
On 1 Aug 20×3 Xtol makes a fully subscribed rights issue of equity share capital base on 2 new shares at 60 cents each for every 5 held. Market price for Xtols shares before issue are $. Issue has already been accounted for
TB
Equity Shares at 25 cents $56000
Share Premium $25000Any guidance or help much appreciated
Hi Stitch!
These are quite commonly seen and there isn’t a great deal that shows how to work it out, so I’ll try and explain.
Firstly we need to know how many shares are currently in issue, of which there are 224,000 ($56,000/$0.25 par).
Secondly we need to work out how many shares were issued through the two for five rights issue. If we had five shares before the issue then we would have seven after, receiving two additional on top of the original five we already had. So to work out the number of shares before we need to multiply the 224,000 by 5/7, to give 160,000 and therefore 64,000 shares issued. If you like to remember a formula, then it is always the number of shares before (5) divided by the number of shares after (7 = 5 + 2). So we will record opening share capital of $40,000 (160,000 x $0.25 par) and shares capital issued of $16,000 (64,000 x $0.25 par)
Finally you can work out the share premium figures based on the fact that we have issued 64,000 shares at $1.02, with a par value of $0.25. I’ll leave that for you to plat with.
Thanks
Finally we can now work out the remaining figures.
Thank you so much.. you are so helpful.. i am just grateful to you.
coz whenever I get stuck with a problem I find a way in the solution you give us. thank you very much sir…
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