Rights issue of 1 for every 2 held ; There are 500000 shares, so 500000/2 = 250000 to be issued @ £1. The ordinary shares are only worth £0.25 per share therefore the other £0.75 is a share premium.
Additional ordinary shares = 250000 x £0.25 = £62500
so now there are 750000 shares and 1 for 5 are going to be issued ; 750000/5 = 150000 @ 0.25 per share (as this is the cost of an ordinary share) = £37500
So you need to take £37500 out of the Premium and put it in to the Ordinary shares
I have the following question in my practice and revision kit, I think that ther is a printing error and the question is not explained.
I am really new to this, if you could please do it in the simplest way possible.
Thank you very much.
At 30/6/02 a company's capital structure was as follows:
Ordinary share capital
500,000 shares of 25c each $125,000
Share premium account $100,000
In the year ended 30/06/03 the company made a rigts 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 30/6/03?
Correct answer
- ordinary share capital $225,000 and share premium account - $250,000.
