Share capital and share premium, bonus issue and rights issue (video below)

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

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