Chapter 5 74 Issue of Shares & Debentures

REVIEW QUESTIONS
5.1
An extract of a company statement of financial position is shown.
Issued Share Capital: $000
3 million ordinary shares of $0.50 each 1 500
Share Premium 100
Retained earnings 300
The company decides to make a rights issue to the existing shareholders. The rights issue was made as 1 new share
for every 3 shares already held.
REQUIRED
Show the effects of rights issue on the company’s share capital and bank balance.
5.2
An extract from a company’s statement of financial position shows the following.
$000
Issued ordinary shares of $1 each 400
Share premium 100
Retained earnings 200
The company makes a rights issue of one new ordinary share for every five shares already held, at $1.00 per share.
All shares were duly taken up.
REQUIRED
By how much did this transaction increase the company’s share capital and bank balance?
5.3
The following information has been taken from the latest statement of financial position of a company.
Shareholders’ Equity $000
750 000 ordinary shares of $1 each 750
Share Premium 140
Retained earnings 160
The company decides to make a rights issue to the existing shareholders at a price of $1.20 each. The issue was
made as 1 new share for every 5 shares already held.
REQUIRED
Show the effects of rights issue on the company’s share holders’ equity and bank balance.
5.4
An extract from a company’s latest statement of financial position shows the following information.
$000
480 000 Issued ordinary shares of $0.50 each 240
Share premium account 80
Retained profits 120
The company makes a rights issue of one new ordinary share for every four held, at a premium of $0.30 per share.
All shares were duly subscribed.
REQUIRED
By how much did this transaction affect the company’s shareholders’ equity and bank balance?
5.5
The following information has been extracted from the latest statement of financial position of a company.
Statement of financial position extract $000
Ordinary shares $1 each 500
Share premium 160
Retained profits 120
780
Chapter 5 75 Issue of Shares & Debentures

In the following month the company made a bonus issue of shares on the basis of 1 for every 5 shares already held.
The directors wish to keep the reserves in the most flexible form.
REQUIRED
Prepare revised statement of financial position extract to show shareholders’ equity after the bonus issue.
5.6
A company currently has the following shareholders’ equity:
$
$1 Ordinary share capital 600 000
Share premium 140 000
Revaluation reserve 130 000
General reserve 80 000
Retained earnings 40 000
990 000
A bonus issue of two ordinary shares for every five shares already in issue was made. Amount was equally taken
from share premium and revaluation reserves
REQUIRED
Prepare revised statement of financial position extract of the company after bonus issue.

5.7
The following information relates to Wilson & Winston plc at 30 September 20X8.

$000
40 million ordinary shares of $0.50 each 20 000
Share premium 4 700
General reserve 1 200
Retained profits 2 120

Freehold property 5 000

 Company made an operating profit amounting to $2 503 000 for the year ended 30 September 20X9.
 Company pays tax at the rate of 30% of profits chargeable to tax.
 On 31 March 20X9 company issued $1 260 000 10% debentures.
Additional information
(i) On 1 October 20X8, freehold property was revalued at $6 000 000.
(ii) On 13 December 20X8, company issued a further 8 000 000 ordinary shares of $0.50 each at a premium of
20%.
(iii) On 1 January 20X9, company paid a final dividend for the year ended 30 September 20X8 at the rate of
$0.02 per ordinary share.
(iv) On 15 February 20X9 a bonus issue of shares of 1 for every 4 held was made. The directors decided to keep
the reserves in their most flexible form.
(v) On 15 January 20X9 an interim ordinary dividend @4% was paid.
(vi) On 30 September directors proposed to increase general reserves by 50% compared to last year closing
balance. An appropriate amount was therefore transferred from retained earnings to the general reserves.
(vii) The directors also proposed a final dividend for the year ended 30 September 20X9 at the rate of 10%.

REQUIRED
(a) Calculate profit attributable to equity holders for the year ended 30 September 20X9.
(b) Prepare a statement of changes in equity for the year ended 30 September 20X9.

5.8
The following information has been extracted from the balance sheet of Super Squad plc on 31 March 20X5.
Chapter 5 76 Issue of Shares & Debentures

$
400 000 ordinary shares of $2 each 800 000
Share premium 240 000
Revaluation reserves 80 000
Retained profits 140 250
Additional Information
1 The company calculated profit attributable to equity holders for the year ended 31 March 20X6
amounting to $110 400.
2 Corporation tax is at the rate of 20%.
3 Financial charges were $12 000 for the year ended 31 March 20X6.
4 On 1 April 20X5 property was revalued from $380 000 to $420 000.
5 On 23 May 20X5, Final ordinary dividend @$0.25 per ordinary share was paid for the year ended 31
March 20X5.
6 On 15 June 20X5 a rights issue of 1 share for every 5 held was made at a premium of $0.20 each. 80%
of shareholders subscribed for the rights issue.
7 On 31 August 20X5 a bonus issue of shares of 1 for every 8 held was made. Amounts were equally taken
from share premium and revaluation reserves. However these shares were not considered for
calculation of dividends for the year ended 31 March 20X6.
8 On 30 September 20X5 an interim dividend of $0.10 per share was paid.
9 On 31 March 20X6 a new general reserve of $50 000 was proposed to be created
10 The directors also proposed a final ordinary dividend of $0.20 per share.

REQUIRED
(a) Calculate operating profit for the year ended 31 March 20X6.
(b) Prepare the statement of changes in equity for Super Squad plc for the year ended 31 March 20X6.