Day: September 1, 2024

Alex plc is a large company with a share capital of 3 million 20p nominal value equity shares.

To raise funds to grow the business it has made a 1 for 4 rights issue of its equity shares at £3.60 per share.

The rights issue was fully taken up but only £1.9 million of the funds raised had been paid up at the year end, 30 September 2023.

The only entry has been t0 debit cash at bank with £1.9 million.

On its extended trial balance Alex plc should do what?

Select ONE answer:

1. Debit Other Receivables £2,700,000 /. Credit Share capital £150,000, Credit Share premium £2,550,000
2. Debit Suspense £1,900,000, Debit Other receivables £800,000 / Credit Share capital £750,000, Credit Share premium £1,950,000
3. Debit Other receivables £800,000 / Credit Share capital £150,000, Credit Share premium £650,000
4. Debit Suspense £1,900,000, Debit Other receivables £800,000 / Credit Share capital £150,000, Credit Share premium £2,550,000

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 == > The initial entry was one sided, so a suspense account with a credit balance of £1.9M must have arisen in the TB. To eliminate the suspense account a debit entry of £1.9M is required. The rights issue is 1 for 4, so (3,000,000/4) = 750,000 × 20p shares are issued, giving a credit of £150,000 in the share capital account. The share premium is therefore (£3.60 – 0.20) = £3.40 per share, which gives a credit to the share premium account of 750,000 × £3.40 = £2,550,000. The remainder of the journal is to record the amount unpaid on the shares ((750,000 ×£3.60) – £1,900,000) = £800,000 as an “other” receivable.

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