Question

could someone take their time and explain me how they got numbers in suggested solutions

the ves as at 31 August 200x. Dr: Rerained Courses with event of the debits must agree with the Example 7.2 Mera ple has the following share capital and reserve 375,000 225,000 200,000 800,000 D y shares: 1.5m shares of 25p each fully paid Share premium Retained profil Total equity under UK law is to 'pay irectors therefore decide to ares at par in the ratio of two One of the few uses for share premium account under for the issue of fully paid bonus shares. The directors use the reserves to issue fully paid bonus shares at shares for every three currently held. Required ries for owners' equity after the bonus a. Show the revised account entries for owners' issue. b. Assuming that the market value of each share has tende around 50p ex div (i.e. excluding the value in the new future) and the total annual dividend paid has re ch share has tended to stay e excluding the value of any dividend expected dividend paid has remained at many years, what would you expect the market price of each share to be after the bonus issue? Suggested solution 625,000 2,500,000 ordinary shares of 25p each fully paid Share premium Retained profit (200,000 - 25,000) 175,000 800,000 e overall owners' equity has not changed: 1.500,000 X 2/3 = 1,000,000 new shares were issued at 25p each, a tot ued at 25p each, a total cost of

where 2,5mil of ordinary shares came from

Answer 1

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Ans:

The following steps will clarify the doubts of the existence of 2,500,000 ordinary shares:

• In requirement - (a), the question asking about the revised owner's equity after the bonus issue. It means before bonus issue, there are 1,500,000 ordinary shares are there.
• The last three lines of the question explains about the directors are deciding to issue bonus in the ratio of two shares for every three shares held (i.e.: for every three ordinary shares there would be two bonus share).
• Now if we calculate the number of bonus hare, it would be 1,000,000 (i.e.: 1,500,000 X 2/3).
• Hence, the total revised owner's equity after the bonus issue is: 2,500,000 ordinary share (i.e.: 1,500,000 beginning ordinary share plus 1,000,000 bonus share)

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