Practice Activity 9.12 Treatment of rights issue of equity shares in the statement of financial pos
- Adaeze Nwobu
- Apr 11, 2023
- 1 min read
The following Statement of financial position was extracted from Chimeremoma Packaging Limited:
In the year ended 31 December 2020, the Company made a rights issue to existing shareholders of one for four shares at ₦1.2 per share. The entire existing shareholders took the rights.
Required:
i. Calculate the amount of share capital representing the rights issue.
ii.Show the extracts of the statement of financial position as at 31 December 2020.
See the suggested answers to practice activity 9.12 here.
Suggested answers to practice activity 9.12
i. The amount of share capital representing the rights issue is calculated as follows:
1 for 4 shares implies 100,000 new ordinary shares.
1/4*400,000 = 100,000
Therefore, 100,000 * ₦1.2 = ₦120,000
The rights issue represents an increase of ₦120,000 in cash.
However, the nominal value of the shares is ₦1.00 each.
Therefore, 100,000 * ₦1.00 = ₦100,000
The share premium is 100,000 * ₦0.2 = ₦20,000
The amount of share capital representing the rights issue is ₦100,000.
ii.Show the extracts of the statement of financial position as at 31 December 2020.
Chimeremoma Packaging Limited
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