Question 1

Lasmed Limited is a manufacturing company is considering a bonus issue of one new share for every five shares held, and wants to ascertain the impact of the bonus issue on the overall entity. Currently, the entity has 100 million ordinary shares outstanding. Each share has a market value of $20/share. The entity's equity structure is as follows:

Ordinary share capital $100,000,000

Share premium $25,000,000

Retained earnings $75,000,000

Total shareholders' equity $200,000,000

Required:

a. Prepare the relevant journal entry for the bonus issue.

b. Reconstruct the equity structure after the bonus issue.

c. Assuming the entity made a rights issue instead of the bonus issue at a discounted price of 90% of market value, prepare the relevant journal entry.

d. On the basis of the rights issue above, reconstruct the entity's equity structure.

Question 2

JetCon Limited a car retailer company has share capital of $100 million at January 1, 2020, which represented 10 million shares. The entity's retained earnings stood at $25 million and revaluation reserves of $75 million as at December 31, 2020. In addition to the above, the company had trade payable, building, inventory and cash of $50 million, $200 million, $30 million and $20 million respectively. On December 30, 2020, the directors declared a four for five bonus issue, which was followed by a rights issue of one for ten shares at $12 per share.

Required:

a. Prepare the entity's statement of financial position as at December 31, 2021 before the issue of any new shares.

b. Prepare the statement of financial position as at December 31, 2021 after the issues declared by the entity's directors.