Question 1 No Handwritten answers will be accepted, students are expected to type in all the answers.

b) CD had 5,000,000 R1 ordinary shares in issue. Subsequently, CD made a rights issue of 1 new ordinary share at R3.50 per share for every 5 ordinary shares currently held. At the same date CD's ordinary shares were trading at R4.75. Required: (i) Explain the difference between a bonus issue and a rights issue of shares. (ii) Prepare the journal entries required to record CD's rights issue in its financial records, assuming that all rights were taken up. c) HI, a parent entity, is planning to acquire a shareholding in ABC. The following alternative investment strategies are being considered: (i) HI can purchase 80,000 preferred shares in ABC; (ii) Hl can purchase 40,000 equity shares and 50,000 preferred shares in ABC; (iii) HI can purchase 70,000 equity shares in ABC and no preferred shares. ABC has the following issued share capital: R R1 Equity shares 100,000 R1 10% Preferred Shares 100,000 Holders of preferred shares do not have any votes at annual general meetings. Required: Identify with reasons how HI would classify its investment in ABC in its consolidated financial statements for each of the alternative investment strategies. b) CD had 5,000,000 R1 ordinary shares in issue. Subsequently, CD made a rights issue of 1 new ordinary share at R3.50 per share for every 5 ordinary shares currently held. At the same date CD's ordinary shares were trading at R4.75. Required: (i) Explain the difference between a bonus issue and a rights issue of shares. (ii) Prepare the journal entries required to record CD's rights issue in its financial records, assuming that all rights were taken up. c) HI, a parent entity, is planning to acquire a shareholding in ABC. The following alternative investment strategies are being considered: (i) HI can purchase 80,000 preferred shares in ABC; (ii) Hl can purchase 40,000 equity shares and 50,000 preferred shares in ABC; (iii) HI can purchase 70,000 equity shares in ABC and no preferred shares. ABC has the following issued share capital: R R1 Equity shares 100,000 R1 10% Preferred Shares 100,000 Holders of preferred shares do not have any votes at annual general meetings. Required: Identify with reasons how HI would classify its investment in ABC in its consolidated financial statements for each of the alternative investment strategies