Moray Mining Ltd issued a prospectus on 25 August 2020 inviting applications for up to 20 000 000

ordinary shares at an issue price of 20c each, payable in full on application. A minimum subscription

of $3 000 000 was specified, with share issue costs of $376 350 expected to be incurred. The

expected closing date for the offer was 15 November 2020. The chairman of the company who is

concerned about the share issue directed the accountant of the company to submit a report

analysing likely outcomes and its impact on the accounting treatment of this share issue. The

accountant is concerned with the direction and requires your assistance in preparing the report to

the chairman.

Required

1. What is the rationale behind specifying a minimum subscription to be reached before a

share issue can be made?

(5 Marks)

2. Explain what can happen if a share issue is 'underwritten' and the effect that underwriting

can have on achieving a minimum subscription. (5 Marks)

3. Assume that the minimum subscription was reached, the offer closed on 15 November

2020, and that 3 000 000 shares were issued on 27 November 2020 with share issue costs

paid on that day. Prepare the journal entries required to be processed from the 25 August

to the 27 November inclusive.

(10 Marks)

4. Given that the share issue was not completed, explain how any costs associated with the

offer would be accounted for.