Reporting changes in share capital FlySavvy is a low-cost airline based in Europe. Revenues and profits have grown rapidly since it started operations in x1. The company has invested heavily in new aircraft as it has expanded its route network. To finance these investments, it has had to raise additional capital from its shareholders and borrow funds from financial institutions. The company launched an initial public offering of its shares in x3 and made a secondary issue of shares in x4. The shareholders’ equity section of its end-x4 balance sheet is set out below (all amounts, save per-share amounts, are in A000).

386 PART 2 • THE HOUSE OF ACCOUNTING Shareholders’ equity At end-x4 Share capital (A0.05 par value ordinary shares, 147.1 million issued and outstanding) 7,355 Share premium 297,479 Retained earnings 231,084 535,918 Net profit for x4 of 83,586 is included in the retained earnings figure. The company pays no dividends on its shares.

The following events affect FlySavvy’s shareholders’ equity in x5 (again, all amounts are in A000, save per-share amounts):

l The company issues 5.5 million ordinary shares in March x5 at a price of A22.8 a share. Issue costs of 4,213 are charged against the share premium account.

l The company carries out a 2:1 split of its shares in July x5.

l It reports net profit for the year of 120,328.

Required

(a) Prepare the shareholders’ equity section of FlySavvy’s x5 balance sheet. What is the number of issued and outstanding shares at the end of x5?

(b)* Consider the effect of the following additional event in x5. FlySavvy buys back 3 million shares in November x5 and holds them in treasury. (The company has a share option scheme for executives and wants to ensure there are sufficient shares available should executives exercise the options in x6 when they’re allowed to.) The repurchased shares were issued at an average price of A7.63 and FlySavvy buys them back at a price of A12.08. Revise the shareholders’ equity section of the company’s x5 balance sheet prepared in (a). What is the book value per FlySavvy share at end-x5?

* Part

(b) of the assignment draws on material in section 2 of this chapter.

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