Page 38 - Ebook Financial Accounting 3
P. 38
Bijork Bhd has retained profits of RM400,000. The net asset value of one ordinary share is:
RM1,200,000 = RM1.50
800,000 shares
If the company declares a bonus issue of one ordinary share for every four held by utilising the
amount available in the retained profits, then the share capital will increase by RM200,000 to
become RM1,000,000. The statement of financial position will be as follows:
Bijork Bhd
Statement of Financial Position as at 31 December 2019
RM
Non-current Assets 900,000
Current Assets 300,000
1,200,000
Equity
1,000,000 Ordinary Shares 1,000,000
Retained Profits 200,000
1,200,000
b) Pre-Emptive Right to New Shares (Right Issue)
The basis for pre-emptive rights is to allow an existing shareholder to preserve his voting power
in a company by entitling him to buy a proportion number of shares in the new share’s issuance.
Generally, existing shareholders will be offered shares in proportion to their shareholdings in
order to maintain relative voting and distribution rights of these shareholders.
Example 2.5:
Adore Bhd, with an issued capital of 100 million ordinary shares, made a rights issue to its
existing shareholders of one share for every four shares held at a price of RM2.50. All the
shares offered under the rights issue were taken up.
Required:
Prepare the journal entries to record the issue of the shares.
32
