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ACCA Applied Knowledge · Financial Accounting · Capital structure and finance costs

Calder Co has 1,000,000 $1 ordinary shares in issue and share premium of $300,000. It makes a 1 for 4 rights issue at $1.40 per share, fully subscribed, and all cash is received. What are the balances of share capital and share premium after the issue?

Share capital is $1,250,000 and share premium is $400,000. A 1 for 4 rights issue creates 250,000 new shares, adding $250,000 of nominal value, and the $0.40 premium per share adds $100,000 to the existing $300,000 premium.

  1. AShare capital $1,250,000; share premium $400,000Correct
  2. BShare capital $1,250,000; share premium $450,000
  3. CShare capital $1,350,000; share premium $300,000
  4. DShare capital $1,250,000; share premium $350,000

Explanation

New shares are 1,000,000 / 4 = 250,000. Share capital rises by $250,000 to $1,250,000. Premium is $0.40 x 250,000 = $100,000, so share premium becomes $400,000. Using $0.50 premium would give $425,000, not offered; $450,000 wrongly adds more premium.

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