Shareholders Equity Update Essay Sample

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1. What is a share? (1 mark)

Share is a unit of ownership in the company’s capital. Each share belonging to the same class represents equal proportion of capital in the company.

2. Identify two advantages of a private placement of shares as compared with a public issue. (1 mark)

Lower cost
Speed, price, direction and prospectus

3.The shareholders of Quinninup Ltd hold 25 000 A class ordinary shares, fully paid at $4.50 each. On 17 April 2012, the company directors voted to make a 1 for 5 rights offer to these shareholders. The additional shares were offered at $1.75 each, payable in full one month after acceptance.

The offer closed on 31 May 2012 with 90% of the shareholders accepting. Shares were duly allotted on that date and all monies were received when due.

Prepare journal entries to record these events, show all workings. (2 marks)

31 May 2012
Dr Cash Trust (25,000* 1/5*90%*1.75)7,875
Cr Application 7,875
(money received on application hold in trust)

30 June 2012
Dr Application 7,875
Cr Share capital 7,875
(allotment of 25,000 shares)

Dr Cash 7,875
Cr Cash trust 7,875

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