Page 183 - F3 -FA Integrated Workbook STUDENT 2018-19

Capital structure and finance costs

Accounting for share issues

2.1 Issue at market price

In the case of an issue at market price, the company must always receive at least the
nominal value per share. Any receipt in excess of nominal value when the shares are
first issued is classified as share premium.
The accounting entries to record a share issue at market price would be:

Debit Bank account (issue price × no. of shares)

Credit Share capital account (nominal value × no. of shares)
Credit Share premium account (premium raised × no. of shares)

2.2 Rights issue

A rights issue is an offer by the company to issue shares to current shareholders on
a pro-rata basis in relation to their existing shareholding. A rights issue is normally
made at less than market value per share (but in excess of nominal value per share)
in order to encourage shareholders to take up the share issue.

A rights issue is very similar to an issue at market price. This means that the
accounting entries will be the same, with entries made in the share capital and share
premium accounts.

The accounting entries to record a rights issue would be:

Debit Bank account (issue price × no. of shares)
Credit Share capital account (nominal value × no. of shares)

Credit Share premium account (premium raised × no. of shares)

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