Question

34

Prior to 1 July 2020, the share capital account of MAGA Ltd had a balance of $10 million, reflecting their issued capital of 1 million ordinary shares, issued at $10 and paid in full. On 1 July 2020, MAGA Ltd announce a 1-for-4 rights issue, with each new share issued under the rights scheme being sold for $20, payable in full upon accepting the offer. Costs associated with the issue amount to $1 million. Assuming that all shareholders exercise their rights in full, what will the balance of the share capital account be once the rights issue is complete? (Note: to be clear, we are looking for the dollar balance, NOT the number of outstanding shares)

Question 36

Gordon Ltd leases a mining helicopter from Freeman Ltd. The right to use asset is valued at $329 133. The lease payment is $100,000 for three years. Gordon Ltd guarantees the estimated residual value of the helicopter in full. Both Gordon Ltd and Freeman Ltd have the same interest rate implicit in the lease as 5%. What amount would Freeman Ltd use to record the lease receivable in their books?

Answer 1

Answer 34

Money received on applications forrights issue = 0.25 million shares x $20 = $5 million (A)

Existing Share capital = $10 million (B)

Costs of right issue = $1 million ( C)

balance of the share capital account be once the rights issue is complete =(A) + (B) - (C)

=$5 million (A)+ $10 million (B) - $1 million ( C) = $ 14 million or $ 14,000,000

Answer 36

Since the  interest rate implicit in the lease is same for both lessor and lesse and the residual value is also guaranteed by lesse the Lease Recoverable amount for Lessor will be equl to the value of Right to use asset at the inception of the lease.

Hence, Freeman Ltd shall record the lease receivable in their books at $329 133