Question

Mining company Edgar Digging Ltd announced plans to raise $1 150 000 through a placement of 5 111 111 ordinary fully paid shares at $0.225 per share to institutional investors to fund new surveys and drilling campaigns for its copper project. Prior to this announcement the shares of Edgar Digging Ltd were trading at around $0.26.

Required 1. Distinguish between a public share float and a debt issuance.  

2. Assuming that the placement above proceeded, what journal entries would be required to account for it?

Answer 1

1. public share float

• The portion of shares of a company held by the public investors is known as public share float. It does not the shares held by the promoters, directors , company officers or government. Float generally refers to the outstanding shares that are publicly traded.
• It is the part of capital in the financial statements.
• Repayment of money is not required.
• Dividend is paid on the shares by the company.

2. Debt Issuance :

• The companies or governments  raise funds by borrowing money from bondholders for a set of interest rate over a specific period.
• It is the part of borrowings in the financial statements.
• Repayment of money is required within specified period.
• Interest is paid on the money borrowed at a specified rate

Journal Entries :

1. Share application a/c

To Share over subscription a/c

(Being placement over proceeded amount transfered to over subscription account)

2. Share oversubscription a/c

To Bank a/c.

(Being oversubscrption paid back for the shares not alloted)