Day: May 5, 2020

A company issued 20,000 25p ordinary shares at a premium of 20%.  The market value of these shares is currently 40p per share.

As a result of this issue, share capital. as shown in the balance sheet, will be increased by?

Select ONE answer:

1. £4,000
2. £5,000
3. £6,000
4. £8,000

Show your workings to arrive at your answer, and explain and justify your reasons:

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This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 2

1. Not correct
2. Correct – The share capital account is credited with the nominal (par) value of the shares issued = 20,000 shares Ca) 25p each = £5,000. The premium on the issue will be credited to the share premium account (shown separately from share capital in the capital and reserves section of the balance sheet). The market value of share capital is not shown in the balance sheet.
3. Not correct
4. Not correct

 

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