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 when the market price is $1.70. All rights are taken up and issue costs of $6,000 are paid in cash and charged against share premium. What is the balance added to share premium, net of costs?
Share premium increases by $106,000 net, but this is not among the intended choices, so the stated key is invalid.
- A$90,000Correct
- B$96,000
- C$102,000
- D$84,000
Explanation
New shares = 800,000 / 5 = 160,000. Proceeds = 160,000 x $1.20 = $192,000. Nominal = 160,000 x $0.50 = $80,000. Premium = $112,000 gross, less $6,000 costs = $106,000... recheck: premium per share is $0.70, so 160,000 x 0.70 = $112,000; net $106,000.
Did you get it right without looking?
One question tells you little. A timed set on Capital structure and finance costs shows your real accuracy, how long you take and where you lose marks.
More Capital structure and finance costs questions
- 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 …
- Birch Co has 500,000 $0.50 ordinary shares in issue and a share premium balance of $40,000. It makes a 1 for 5 bonus issue, using the share …
- Jarrow Co issues 200,000 $1 ordinary shares at $1.60 each, fully paid in cash. Which journal entry is correct?
- Dunmore Co issued $500,000 of 6% loan notes on 1 October 20X4. Interest is paid half-yearly in arrears on 31 March and 30 September. The yea…
- Ostrava Ltd has 3,000,000 equity shares of $1 each and 1,000,000 8% redeemable preference shares of $1 each, correctly classified as liabili…
- Pellam Co has the following extracts: profit before interest and tax $360,000; finance costs $40,000; equity $900,000; non-current liabiliti…