ACCA Applied Knowledge · Financial Accounting · Capital structure and finance costs
Dunn Co has 800,000 $1 ordinary shares in issue. It makes a 1 for 4 rights issue at $2.00 per share, fully taken up, with issue costs of $10,000 written off against share premium. What is the net increase in total equity?
Total equity increases by $390,000. The issue raises 200,000 shares at $2.00, giving $400,000 cash, and the $10,000 issue costs are deducted from share premium within equity, leaving a net increase of $390,000.
- A$390,000Correct
- B$400,000
- C$410,000
- D$200,000
Explanation
New shares = 200,000. Cash raised = 200,000 x $2 = $400,000. Issue costs of $10,000 are deducted from equity (against share premium), so net increase = $390,000. $400,000 ignores the costs; $410,000 adds them wrongly.
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