13 June 2023
what would be the journal entry of Right ratio received of 96 shares on dated 12-04-2022 from Asian Grantion. And what will be the cost of shares received.
20 August 2023
The cost depends on what price they were brought earlier
ACCOUNTING FOR RIGHT ISSUE
The accounting treatment of rights share is the same as that of issue of ordinary shares and the following journal entry will be made:
Bank A/c Dr. To Equity shares capital A/c
In case rights shares are being offered at a premium, the premium amount is credited to the securities premium account.
The accounting entry is usual and is
Bank A/c Dr. To Equity Share Capital A/c To Securities Premium A/c
ADVANTAGES AND DISADVANTAGES OF RIGHT ISSUE
Advantages of right Issue Right issue enables the existing shareholders to maintain their proportional holding in the company and retain their financial and governance rights. It works as a deterrent to the management, which may like to issue shares to known persons with a view to have a better control over the company’s affairs. In well-functioning capital markets, the right issue necessarily leads to dilution in the value of share. However, the existing shareholders are not affected by it because getting new shares at a discounted value from their cum-right value will compensate decrease in the value of shares. The cum- right value is maintained otherwise also, if the existing shareholders renounce their right in favour of a third party. Right issue is a natural hedge against the issue expenses normally incurred by the company in relation to public issue. Right issue has an image enhancement effect, as public and shareholders view it positively. The chance of success of a right issue is better than that of a general public issue and is logistically much easier to handle. Disadvantages of right issue The right issue invariably leads to dilution in the market value of the share of the company. The attractive price of the right issue should be objectively assessed against its true worth to ensure that you get a bargained deal. Effects of right issue Maintenance of existing shareholders proportional holding in company and retain their financial and governance rights Dilution in the value of share Image enhancement Convenience in handling issue
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