1. Advanced Financial Accounting FIN-611
Mian Ahmad Farhan
Lecture-23
Limited Companies

2. Right Issue

3. Journal Entry
Bank A/c xxx
Share capital A/c xxx

4. Working Amount received = 200,000 x 1.5 = 300,000
Face value = 2,00,000 x 1 = 200,000
Share premium = 200,000 x 0.5 = 100,000

5. Journal Entry Bank A/c 300,000 Share capital A/c 200,000
Share premium A/c 100,000

6. Question DT limited has 800,000 Rs. 1 ordinary shares in
issue. They were originally issued at a premium of
40 paisa each. The current market price of these
shares is Rs. 3.50
DT has announced 1 for 4 rights issue at Rs. 3
per share.
Required
Record journal entry
Prepare balance sheet

7. Working Right issue = 800,000 / 4 x 1 = 200,000 shares
Amount received = 200,000 x 3 = 600,000
Face value = 2,00,000 x 1 = 200,000
Share premium = 200,000 x 2 = 400,000

8. Journal Entry Bank A/c 600,000 Share capital A/c 200,000
Share premium A/c 400,000

9. Owner’s Equity Owner’s Equity Amount Share capital (800,000 + 200,000)
Share premium (320, ,000)
1,000,000
720,000

10. Bonus Issue

11. Journal Entry
Reserve A/c xxx
Share capital A/c xxx

12. Question The owner’s equity section of “Bonus Limited” is as follow:
Amount
Issued capital ,000
Share premium ,000
Retained profit ,000
1,450,000

13. Question Bonus share is issued, 2 for every 5 shares held.
(50,000 / 5 x 2) = 20,000 x 10 = Rs. 200,000
Share premium account will be utilized for bonus
shares.
Required
Show the effect on owner’s equity account before and after adjustment of bonus share.

14. Solution Share capital Retained profit Total Particulars Share premium
Before bonus
issue
Bonus issue
After bonus
Share capital
500,000
200,000
700,000
Share premium
380,000
(200,000)
180,000
Retained profit
570,000
----
Total
1,450,000
Particulars column will appear in first
Then Before bonus issue
Then 500,000
Then 380,000
Then 570,000
Then
Bonus at once complete will appear
Then at last After bonus issue one by one

15. Journal Entry
Share premium A/c 200,000
Share capital A/c 200,000

16. Dividend

17. Initial Public offer