a) JH Bhd issued 20,000 redeemable preference shares for RM20,000 cash on 24 August 2020. Dividend payment is mandatory at 10 sen per share. Redemption is discretionary. The current borrowing cost of the company is 8%.

Required:

i) Determine the liability component and the equity component of the redeemable preference shares. (4 marks)

ii) Provide two other types of preference shares which can be treated as compound financial instrument. (2 marks)

b) In a rights offer, AY Bhd issued 500,000 ordinary shares at a price of RM2.00 per share for cash. As a package with the rights issue, the company also issued 500,000 free warrants. The warrants entitle shareholders to subscribe for ordinary shares at an exercise price of RM2.50 per share within two years of the issue. The fair value of the ordinary shares and warrants at the date of issue are RM1.60 and RM0.40 respectively.

Required:

Explain how AY Bhd should account for the proceeds from rights issue with free warrants and the subsequent exercise of warrants. (6 marks)

c) SJ Bhd purchased 5,000 of its own shares at a price of RM2.70 per share and cancelled the shares on 28 December 2020. Transaction costs amounted to RM250.

Required: Prepare journal entries to record the shares repurchase and cancellation. (4 marks)