ExpertMedium2 marksShort Answer
ACCA · Question 24 · Preparing basic financial statements
Section A
Saturn PLC has 500,000 ordinary shares of $0.25 in issue. It makes a rights issue of 1 new share for every 5 existing shares at a price of $1.50 per share. All rights are taken up.
What is the increase in the share premium account as a result of this rights issue? (Enter numbers only)
Section A
Saturn PLC has 500,000 ordinary shares of $0.25 in issue. It makes a rights issue of 1 new share for every 5 existing shares at a price of $1.50 per share. All rights are taken up.
What is the increase in the share premium account as a result of this rights issue? (Enter numbers only)
How to approach this question
Calculate the number of new shares issued. Calculate the premium per share (Issue price - Nominal value). Multiply the number of new shares by the premium per share.
Full Answer
Number of new shares = 500,000 / 5 = 100,000 shares. Premium per share = $1.50 - $0.25 = $1.25. Total increase in share premium = 100,000 shares * $1.25 = $125,000.
Common mistakes
Calculating the total cash received ($150,000) instead of just the premium, or using the wrong nominal value.
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