Vanguard Enterprise Plc had an issued share capital of 1,000,000 ordinary shares of \text{… — JAMB UTME

Vanguard Enterprise Plc had an issued share capital of $1,000,000$ ordinary shares of $\text{₦}0.50$ each and a Share Premium account balance of $\text{₦}120,000$ . The company declared a bonus issue of $1$ new ordinary share for every $5$ shares held, utilizing the Share Premium account to fund the bonus shares. Immediately following the bonus issue, the company made a rights issue of $1$ new ordinary share for every $4$ shares held at an issue price of $\text{₦}0.80$ per share. What is the final balance of the Share Premium account (in $\text{₦}$ ) after both transactions are completed?

Answer: 110000 ₦

Answer

The final balance of the Share Premium account after both the bonus issue and rights issue is ₦110,000.

The correct final Share Premium balance is ₦110,000. Funding 200,000 bonus shares of ₦0.50 each requires ₦100,000 from the initial ₦120,000 premium, leaving ₦20,000. Subsequently, the 1-for-4 rights issue on the expanded 1,200,000 shares issues 300,000 shares at a premium of ₦0.30 per share (₦0.80 - ₦0.50), creating ₦90,000 of fresh premium. Summing the remaining ₦20,000 and ₦90,000 gives ₦110,000.

Step-by-Step Solution

Calculate the bonus issue share quantity and nominal capital value

200,000 bonus shares with a total nominal value of ₦100,000

A 1-for-5 bonus issue on 1,000,000 shares yields 1,000,000 / 5 = 200,000 shares. At a nominal value of ₦0.50 each, the capital required is 200,000 × ₦0.50 = ₦100,000.

Deduct the capitalized amount from the initial Share Premium balance

Remaining Share Premium balance of ₦20,000

Initial Share Premium balance of ₦120,000 minus ₦100,000 capitalized for bonus shares leaves ₦20,000.

Determine the expanded share base and calculate the number of rights shares issued

300,000 rights shares issued

Post-bonus issued shares total 1,000,000 + 200,000 = 1,200,000 shares. A 1-for-4 rights issue gives 1,200,000 / 4 = 300,000 shares.

Compute the total share premium generated from the rights issue

₦90,000 in new share premium

Rights issue price is ₦0.80 per share while nominal value is ₦0.50, giving a premium of ₦0.30 per share. Total new premium created = 300,000 × ₦0.30 = ₦90,000.

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