ACCA Applied Knowledge · Financial Accounting · Capital structure and finance costs
Cedar Co issues 300,000 $1 ordinary shares at $1.60 each. Issue costs of $12,000 are paid in cash and, under IFRS, are a direct cost of the equity issue. What is the balance added to the share premium account?
The share premium added is $168,000. The premium on issue is $0.60 per share, or $180,000 on 300,000 shares. The $12,000 transaction costs are a direct cost of issuing equity and are deducted from share premium, not charged to profit or loss.
- A$168,000Correct
- B$180,000
- C$192,000
- D$172,000
Explanation
Proceeds are 300,000 x $1.60 = $480,000. Share capital is $300,000, so the premium is $180,000. Issue costs of $12,000 are deducted from equity, here against share premium, giving $168,000. Ignoring the costs gives $180,000, which is wrong.
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