Beruflich Dokumente
Kultur Dokumente
Answer:
Ordinary Share $ Share Premium $
Opening Balance 125,000 100,000
Rights Issue 250,000 x 25c 62,500 250,000x75c 187,500
Bonus Issue 150,000 x 25c 37,500 150,000x75c (37,500)
In July 2009 Jevan Co made a rights issue of 1 share for every 4 held at $1 per share. This was fully taken up.
In October 2009 Jevan Co made a bonus issue of 1 share for every 5 held, using the share premium account to finance the issue. All
shares in issue qualified for the bonus issue.
1 june 2009
OSC (1,000,000sh @ 50c) = $500,000
S.P $400,000
July 2009
Rights Issue- 1 for 4 @ $1
(1,000,000/4)*1= 250,000 shares
Entry:
Dr. Cash/Bank (250,000*$1) $250,000
Cr. OSC (250,000@50c) $125,000
Cr. S.P $125,000
October 2009
Bonus Issue 1 for 5
(1,250,000/5)*1 = 250,000 shares
Entry:
Dr. S.P $125,000
Cr. OSC (250,000*50c) $125,000
31 May
OSC = $500,000 + $125,000 + $125,000 = 750,000
S.P = $400,000 + $125,000 $125,000 = 400,000
Answer is C.
Another example
Bonus Issue
Shareholders are awarded additional securities (shares, rights or warrants)
free of payment. The nominal value of shares does not change.
Please note that a Bonus Issue should NOT be seen as a Dividend, like for
example a STOCK DIVIDEND event.
For every four shares you own in ABC you will receive one additional free
share i.e. you will own 5 shares of ABC plc after the issue
The number of shares issued increases by 25%
The share price adjusts proportionately; if the market price was 100 cents
before the issue, it will adjust to 80 cents as the number of shares have
increased
The Earnings Per Share (EPS) and Dividend Per Share adjust
proportionately, but the ratios remain the same
The issued share capital increases by 25%, although this is offset by the
reduction in the capital reserves.
Let us say you purchased 1000 shares in ABC plc at 100p per share. For
Capital Gains tax purposes, the Bonus shares are treated as the same asset
and acquired at the same time as your existing ABC plc shares. There is no
immediate liability to CGT when you receive the bonus shares, but there
could be a capital gains tax liability when you come to dispose of the shares.
In order to determine your capital gains when you come to make a full or
part disposal of your ABC plc holding, you need to adjust the base cost of
your shares, reducing the cost per share as follows:
In this example, you receive 1 new Bonus Issue share for every 4 shares
held.
If you own 1000 shares, (1000/4 = 250) then you will receive 250 new
bonus shares.
When you make a full or part disposal of your ABC plc shares, it is the new reduced base cost
that you use in your Capital Gain calculations.
Rights and Bonus Issues of Shares
Rights Issues
A rights issue offers your existing shareholders the right to buy further shares in your business, usually at
a discount to the market price (how much they sell for currently). This is a cheaper way to do this over a
full public offering (i.e. to everyone). We know that they are already shareholders and may be interested
in buying more. This is a way of raising finance allowing it to use the funds to purchase non-current
assets, repay debts etc.
Shares may be sold at a premium to the market price the difference goes in the share premium a/c
Shares are usually offered on a x to y basis (known as pro-rata) e.g. 1 for 2 basis. If so multiply the
current issued value of the shares by to find out how many new shares (in ) is to be added. Should
the shares be sold at a premium then take the nominal price from the issued price and multiply by the
number of shares sold.
Exam Tip - Watch out for shares being 50p rather than 1 This means that twice as many shares were
sold!!!
Bonus Issue
This is used as a way of keeping shareholders happy. If a firm is unable to offer dividends (e.g. due to
insufficient funds or wishes to retain the money) then it may give shares for free on an x to y basis. A
bonus issue does not raise finance.
If shares are given away on a 1 for 3 basis multiply the issued share capital (in ) by 1/3 to find out how
many shares you have given away.
However since the value of the business (i.e. total capital) does not change another capital must go
down take it from Capital Reserves (such as Share Premium or Revaluation reserve) and then, if there
is still not enough the Revenue Reserves.
Bonus issues can also be used to reduce the share price (a share split) to make shares appear more
attractive to potential shareholders. For example a 1 for 9 bonus issue will recapitalise reserves making
50 shares fall to approximately 5 whilst reducing some other reserves.
FROM CIMA
Bonus issue
A bonus or scrip issue is the issue of new shares to existing shareholders for no consideration. This may seem like
a bad idea but there are usually sound business decisions behind it. Examples of the uses of a bonus issue are:
to reduce the share price to promote new investment. This follows a simple supply and demand
theory. The more shares there are in issue the less people want them and so the price falls
instead of a dividend payment where there is a cash shortage within a business.
The amount of shares issued will be based on the number of shares in issue. For example, one for five means for
every five shares owned by the shareholder one new share will be issued.
The debit entry for a bonus issue is normally to retained earnings or the share premium account.
The journal for a bonus issue records the nominal value of shares issued as follows:
Dr Share premium/retained earnings
Cr Share capital
Example:
Company B has in issue 300,000 USD1 equity shares and a share premium account balance of USD550,000. It
makes a bonus issue of three for two, utilising its share premium account.
Start by working out how many new shares will be issued. 300,000 shares are currently in issue so the number of
bonus shares issued will be 300,000 X 3/2 = 450,000.
The shares have a nominal value of USD1 so this will create USD450,000 (450,000 x USD1) of share capital. The
journal to record the bonus issue from share premium is:
Dr Share premium USD450,000
The revised balance on the share premium account is therefore USD100,000 (USD550,000 - USD450,000). Share
capital in the statement of financial position will be USD750,000 ((300,000 x USD1) original shares +USD450,000
issue).
4. Rights issue
The rights issue is again offered to existing shareholders but this time for monetary consideration. The shares are
offered at a price which is below current market value. This encourages existing shareholders to buy more shares,
generating finance for the entity.
Another incentive may be that if the option is taken up by all existing shareholders the balance of control is not
affected. For an investor with significant influence over the entity, who does not take up their options, this
influence could be lost.
A rights issue is offered on the same basis as a bonus issue, for example two for five, but the shareholders have
the choice as to whether to buy the shares or not. This means that raising finance is not guaranteed using this
approach.
Although the shares are not issued at full market value, the price offered will be above nominal value so a share
premium balance is created.
Example:
Company C has in issue 500,000 USD1 equity shares with a current market value of USD2.80 each. It offers a
rights issue of 2 for 5 shares at an offer price of USD2.50. The offer is fully taken up by all shareholders.
Again start by working out how many new shares will be issued.
(500,000 shares in issue dived by 5 shares needed to take part) multiplied by 2 new shares issued = 200,000 new
shares.
The shares have a nominal value of USD1 so this will create USD200,000 (200,000 x USD1) of share capital but
will generate USD500,000 (200,000 x USD2.50) of cash.
The journal to record the rights issue is:
Dr Cash USD500,000
Share issues are an important topic as this knowledge will follow through to both F1 and F2 exams, so make sure
you are fully comfortable with them.
Can I see separate calculations for ordinary share capital and share premium account please?
Hi, um a student here.. but I think I can help you with this
rights issue..
1 for every 2 held.. it will be therefore.. 500,000/2 = 250,000 shares as rights issue..
hence
250,000 x 0.25 = 62,500 to be added to share capital
250,000 x 0.75 = 187,500 to be added to share premium
bonus issue..
so finally
On first January 2013 the capital structure of Q a limited liability company was as follows:
On April 2013 the company made an issue of 200,000 50c shares at $1.30 each and on 1 July made a bonus issue of 1 share for every
4 in issue at that time using the share premium account for this purpose.
What are the balances on the accounts after the bonus issue?
I have a question is about that How did the retained earnings and share capital change?and what does this 3 for 2bonus issue mean?
A 3 for 2 bonus issue means that they issue three new shares (free of charge) for every 2 shares that shareholders currently own.
Whenever there is a bonus issue, the share capital increases by the nominal value of the shares issued.
As they were issued free of charge, the reserves must fall by the same amount.
Usually it is the share premium account only that reduces (because it is a capital reserve) but if there is not enough on the share
premium account then other reserves have to fall (here, the only other reserve is retained earnings).
You will find it helpful to watch the free lecture on Company Accounts, where rights issues and bonus issues are explained.
Nominal value or par value means the value per share stated on the face of the share certificate. In
ACCA courses you find the par value as $0.25; 0.50 or $1. This would mean that each share has a face
value of $0.25; $0.50 or $1. Please remember that according to the Companies Act 2006, the
memorandum and articles of association of a company must state the total amount of authorised share
capital as well as the face value per share.
Share premium is the amount in excess of par value received on the issue of shares. For example a
company issues shares with a face value of say $1 at a price of $1.50. This means that $1.0 is the par
value and $0.50 is the premium per share,
Rights issue means that when a company issues further shares then the existing shareholders have a
preemptive right to buy the shares. If the shareholders do not take up these shares, they can be issued
to outsiders or third parties.
Bonus issue is the issue of shares to the shareholders from the available profits as stock dividends. The
shareholders get additional shares free of cost instead of cash dividends. In this manner the company
can keep its shareholders happy as well as save the cash funds from being distributed.
In the year ended 30 June 20x3 the company made a rights 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 bounus issue of 1 share for every 5 held. using the share premium account for the purpose.
What was the companys capital structure at 30 June 20x3
I don't understand why the correct answer is ordinary share capital is 225000 and share premium account is 250000
Ok, first off, make sure you do the calculations in date order, starting with the earliest transaction.
500,000 shares held when the rights issue was made. A rights issue is an offer to existing shareholders to buy additional shares at a reduced cost, with
the maximum they can buy based on the number of shares they currently hold. This is a method of raising capital for the company.
So, in a 1 for 2 rights issue which is taken up in full, 250,000 shares will be issued (500,000 / 2).
Ordinary share capital of rights issue = 250,000 * 25c = $62,500
Share premium capital of rights issue = 250,000 * ($1 - $0.25) = $187,500
[Check: 62,500 + 187,500 = 250,000 = $1 * 250,000 shares]
A bonus issue is an issue of shares to existing shareholders at no charge, in proportion to their existing holdings. Here the cost of the shares issued (at
nominal value i.e. 25c) is paid from the share premium account, and transferred to the ord share capital account.