Question

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?

Answer 1

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