Rights issues and bonus issues Flashcards
What is a rights issue?
A rights issue is a way of raising additional finance. Share are offered to existing shareholder at a price below market value but above nominal value
How is share premium created?
When shares are sold above their nominal value.
What is a bonus issue?
It is when a company issues free shares to existing shareholders out of capital/revenue reserves. Alternative to dividends
How does a rights issue effect the statement of financial position?
Increases share capital by nominal value of rights issue.
Increases share premium account by amount paid over nominal value
Increase bank by total amount paid for the shares
Number of shares before rights issue =
Share capital / Nominal value
What premium is there if shares were issued at a nominal value of 50p at a price of £1.50?
£1 Share premium per share
What is the premium if shares are issued at a nominal value of 50p at a premium of £1.50?
£1.50 premium, £2 issue price
How does a bonus issue effect the sofp?
Increase the issued share capital by the amount of the bonus issue
Decrease retained earnings by the amount of the bonus issue
Do you need to workout share premium for a bonus issue?
No because they are issued at nominal value always.
