ACCA Applied Knowledge · Financial Accounting · Capital structure and finance costs
Kora Co has 800,000 $0.50 equity shares in issue. It makes a 1 for 5 rights issue at $1.20 per share and all rights are taken up. Issue costs of $6,000 are paid in cash and charged against share premium. By how much does the share premium account increase, net of costs?
Share premium increases by $106,000. The 160,000 new shares carry premium of $0.70 each, giving $112,000, and the $6,000 issue costs are deducted from share premium.
- A$112,000
- B$106,000Correct
- C$100,000
- D$186,000
Explanation
New shares = 800,000 / 5 = 160,000. Premium per share = $1.20 - $0.50 = $0.70, so gross premium = $112,000. Deducting issue costs of $6,000 gives $106,000. $112,000 ignores the costs.
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