A company had 300 000 ordinary shares of $1 each in issue at the start of the year. In January it made a bonus issue of one ordinary share for every five held, and in April it made a rights issue of one ordinary share for every four then held, fully subscribed at $1.50 per share. Calculate the cash raised by the rights issue.

Model answer

135000

Also accepted: 135 000, $135 000

Explanation

The bonus issue is 300 000 / 5 = 60 000 shares, taking the holding to 360 000. The rights issue is then 360 000 / 4 = 90 000 shares at

1.50 =

135 000 of cash. The bonus issue itself raises nothing, being a book entry only.

Derived from ZIMSEC Accounting 9197/3 Paper 3 (Case Study), November 2005, Q1

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