Day: February 2, 2021

A company converts £2,000,000 debenture stock into £0.50 ordinary shares.

The conversion rate is 40 ordinary shares per £100 debenture stock.

What amount is credited to the Share Premium account?

Select ONE answer:

1. £800,000
2. £1,000,000
3. £1,200,000
4. £1,600,000

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

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

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

The answer is 4

1. Not correct
2. Not correct
3. Not correct
4. Correct – £2,000,000 / £100 = 20,000 * 40 = 800,000 / 2 = £400,000 ==> £2M – £0.4M = £1.6M Premium

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