Fitness Ltd. is planning to raise funds by making rights issue of equity shares to part finance its expansion. The existing equity share capital of the company is ₹40 lakh and the market value is ₹45 per share. The compa

CS Executive · Company Accounts & Auditing Practices · PYQS · December 2015
Fitness Ltd. is planning to raise funds by making rights issue of equity shares to part finance its expansion. The existing equity share capital of the company is ₹40 lakh and the market value is ₹45 per share. The company offered to its shareholders the right to buy 2 shares at ₹12 each for every 5 shares held. You are required to calculate: (i) Theoretical market price per share after the rights issue; (ii) The value of rights; and (iii) Percentage increase in share capital.

Answer & Explanation:

Calculation: Market Value of 5 shares already held by a shareholder @ ₹45 each = ₹225 Add: Price to be paid for 2 more shares @ ₹12 each = ₹24 Total price of 7 shares after rights issue = ₹249 (i) Theoretical Market price after the rights issue: = 249 / 7 = ₹35.57 (ii) Value of Rights: = Market price - Theoretical Market Price = ₹45 - ₹35.57 = ₹9.43 (iii) Percentage increase in share capital: Present capital = ₹40,00,000 Rights Issue = (₹40,00,000 × 2) / 5 = ₹16,00,000 Percentage increase in share capital = (₹16,00,000 / ₹40,00,000) × 100 = 40%

Topics: Company Accounts

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