The balance sheet of Menis PLC is as follows:

T he company has normally paid a dividend of 30 per cent, the market price of the shares reflecting the shareholders' acceptance of an 8 per cent yield. The company now proposes to make a scrip issue of two ordinary shares for every three currently held:

(a) What is the purpose of such an issue?

(b) What expenses would be incurred by the company?

(c) What is the effect on future dividends?

(d) What reserves can be used for this purpose?

(e) What is the market value of an ordinary share before and after the issue?

(f) Show the ledger accounts to give effect to the issue.
(g) Draw up a balance sheet after the issue has been made.

Transcribed Image Text:

Ordinary share capital Sundry assets 195,000 (1) 60,000 Share premium 20,000 General reserve 40,000 Profit and loss 60,000 Current liabilities 15,000 195,000 195,000