At 1 July 20X2 the share capital and share premium account of a company were as follows:
| Share capital – 75,000 ordinary shares of 25c each | 18,750 |
| Share premium account | 50,000 |
During the year ended 30 June 20X3 the following events took place:
1.On 1 January 20X3 the company made a rights issue of two shares for every three held, at $1.20 per share.
2.On 1 April 20X3 the company made a bonus (capitalisation) issue of three shares for every five in issue at that time, using the share premium account to do so.
What are the correct balances on the company’s share capital and share premium accounts at 30 June 20X3?
Answer
Rights issue
Number of rights issue = 75,000 x 2/3= 50,000 shares
Dr. Cash ( 50,000 x 1.2)………………………60,000
Cr. Share capital (50,000 x 0.25)………………………….12,500
Cr. Share premium (50,000 x 0.95)………………………47,500
Bonus issue
Number of bonus issue = (75,000 + 50,000) x 3/5 = 75,000
Dr. Share premium ( 75,000 x 0.25)………….18,750
Cr. Share capital…………………………………..…….18,750
Share capital = 18,750 +12,500 + 18,750 = 50,000
Share premium= 50,000 + 47,500– 18,750 = 78,750