Advanced Financial Accounting FIN-611 Mian Ahmad Farhan Lecture-23 Limited Companies

Right Issue

Journal Entry Bank A/c xxx Share capital A/c xxx

Working Amount received = 200,000 x 1.5 = 300,000 Face value = 2,00,000 x 1 = 200,000 Share premium = 200,000 x 0.5 = 100,000

Journal Entry Bank A/c 300,000 Share capital A/c 200,000 Share premium A/c 100,000

Question DT limited has 800,000 Rs. 1 ordinary shares in issue. They were originally issued at a premium of 40 paisa each. The current market price of these shares is Rs. 3.50 DT has announced 1 for 4 rights issue at Rs. 3 per share. Required Record journal entry Prepare balance sheet

Working Right issue = 800,000 / 4 x 1 = 200,000 shares Amount received = 200,000 x 3 = 600,000 Face value = 2,00,000 x 1 = 200,000 Share premium = 200,000 x 2 = 400,000

Journal Entry Bank A/c 600,000 Share capital A/c 200,000 Share premium A/c 400,000

Owner’s Equity Owner’s Equity Amount Share capital (800,000 + 200,000) Share premium (320,000 + 400,000) 1,000,000 720,000

Bonus Issue

Journal Entry Reserve A/c xxx Share capital A/c xxx

Question The owner’s equity section of “Bonus Limited” is as follow: Amount Issued capital 50,000 @ 10 500,000 Share premium 380,000 Retained profit 570,000 1,450,000

Question Bonus share is issued, 2 for every 5 shares held. (50,000 / 5 x 2) = 20,000 x 10 = Rs. 200,000 Share premium account will be utilized for bonus shares. Required Show the effect on owner’s equity account before and after adjustment of bonus share.

Solution Share capital Retained profit Total Particulars Share premium Before bonus issue Bonus issue After bonus Share capital 500,000 200,000 700,000 Share premium 380,000 (200,000) 180,000 Retained profit 570,000 ---- Total 1,450,000 Particulars column will appear in first Then Before bonus issue Then 500,000 Then 380,000 Then 570,000 Then 1450000 Bonus at once complete will appear Then at last After bonus issue one by one

Journal Entry Share premium A/c 200,000 Share capital A/c 200,000

Dividend

Initial Public offer