Advanced financial accounting - Lecture 23: Limited companies

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
1. Record journal entry
2. 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:
Owner’s Equity
Issued capital 50,000 @ 10
Share premium
Retained profit

Amount
500,000
380,000
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
Particulars

Before
bonus
issue

Bonus
issue

After
bonus
issue

Share capital

500,000

200,000

700,000

Share premium

380,000

(200,000)

180,000

Retained profit

570,000

----

570,000

Total

1,450,000

1,450,000


Journal Entry

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


Dividend


Initial Public offer