Accounting Online Program Certification Practice Test

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What was the total balance on Mercury Ltd's share premium account after the rights issue?

£100,000
£107,500
£125,000
£130,000

The correct answer is: £107,500

To determine the total balance on Mercury Ltd's share premium account after the rights issue, it's important to understand what a share premium account represents. This account records the amount received from shareholders above the nominal value of the shares issued. When a company conducts a rights issue, it typically offers new shares to existing shareholders at a specified price, which could be higher than the nominal value, thus creating additional share premium. When calculating the total balance, it involves considering the pre-existing balance in the share premium account along with the new funds raised through the rights issue, taking into account any premium that is received over the nominal share value. If the total balance after the rights issue is £107,500, it indicates that this figure includes both the original share premium and the premium from the new shares issued during the rights offering. This amount suggests a specific arithmetic based on the company’s previous valuations and the terms of the rights issue. In this context, the calculated balance of £107,500 aligns with the presumed premiums generated during the offer, demonstrating that the amount raised exceeded the nominal value as intended in the rights issue.