Rights issues-shares-help please

vmartin

Please help me understand the following example:

A company with an issued share capital of £500,000 in £1 ordinary shares decided to raise an additional £100,000 by means of a one for ten rights issue at a price of £2 per share.

The price includes a share premium of 50p per share. The issue is fully subscribed and all money is received. You need to prepare the journal entries, they have

DR Bank account £100,000
Cr ordinary share capital £50,000
cr share premium account £50,000

I would have done


DR Bank account £100,000
Cr ordinary share capital £75,000
cr share premium account £25,000

as 50p out of £2 was share premium(25%)

25% of £100,000 is £25,000

Bluewednesday

The share nominal value is £1 so the share premium value is £1 per share.

The ordinary share capital is always the nominal value of the shares, I'm not sure why they have said the share premium was 50p!