Question

A company is planning to raise funds by making rights issue of equity shares to finance its expansion. The existing share capital of the company is OMR 10 million consisting of equity shares of OMR 0.500 each. The market value of its share is OMR 2.500. The company offered to its shareholders the right to buy 2 shares at OMR 1.500 each for every 5 shares held. 30% of the shareholders rejected the offer. Journalize the given entries show the necessary calculations and also the abstract of Balance sheet after such issue and calculate the theoretical ex – right price for the above scenario

Answer 1

To assess a company's expansion funding through a rights issue of equity shares, it is necessary to journalize the entries, calculate the number of shares issued, consider the acceptance rate among shareholders, and compute the theoretical ex-right price considering the market value and rights issue pricing.

Step-by-step explanation:

A company is planning to raise funds by making a rights issue of equity shares to finance its expansion. The existing share capital of the company is OMR 10 million consisting of equity shares of OMR 0.500 each. The market value of its share is OMR 2.500. The company offered to its shareholders the right to buy 2 shares at OMR 1.500 each for every 5 shares held. 30% of the shareholders rejected the offer. To journalize the entries, calculate the necessary figures and prepare an abstract of the balance sheet after the issue, we need to know several values such as the number of new shares subscribed, the amount received, and the resulting share capital. Since 30% rejected the offer, 70% accepted it, subscribing to additional shares and providing more equity to the company. The calculation of the theoretical ex-right price would take into account the average price of the shares before and after the rights issue.