ACCA Applied Knowledge · Financial Accounting · Capital structure and finance costs
Kora Co has 600,000 ordinary shares of $0.50 each. It makes a 1 for 3 rights issue at $1.20 per share, fully taken up. What is the credit to the share premium account?
The share premium credit is $140,000. The rights issue creates 200,000 new shares, each issued at $1.20 against a $0.50 nominal value, giving a premium of $0.70 per share, and 200,000 multiplied by $0.70 equals $140,000.
- A$140,000Correct
- B$240,000
- C$120,000
- D$200,000
Explanation
New shares = 600,000 / 3 = 200,000. Premium per share = $1.20 - $0.50 = $0.70. Share premium = 200,000 x 0.70 = $140,000. $240,000 is the total cash received, and $100,000 would be the share capital amount.
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