During the current year, ABC Company issued for P220 per share, 15,000 convertible preference shares of P200 par value. One preference share may be converted into three ordinary shares of P50 par value at the option of the preference shareholder. At year-end, all the preference shares were converted into ordinary shares. The market value of the ordinary share at the conversion date was P80.What amount should be credited to the share premium at the time of the issuance of the preference shares?
Question
During the current year, ABC Company issued for P220 per share, 15,000 convertible preference shares of P200 par value. One preference share may be converted into three ordinary shares of P50 par value at the option of the preference shareholder. At year-end, all the preference shares were converted into ordinary shares. The market value of the ordinary share at the conversion date was P80.What amount should be credited to the share premium at the time of the issuance of the preference shares?
Solution
To calculate the amount to be credited to the share premium at the time of issuance of the preference shares, we need to follow these steps:
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Calculate the total amount received from the issuance of the preference shares. This is done by multiplying the issue price per share by the number of shares issued. In this case, P220 * 15,000 = P3,300,000.
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Calculate the par value of the preference shares issued. This is done by multiplying the par value per share by the number of shares issued. In this case, P200 * 15,000 = P3,000,000.
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Subtract the par value of the preference shares issued from the total amount received from the issuance. This will give us the share premium. In this case, P3,300,000 - P3,000,000 = P300,000.
Therefore, the amount that should be credited to the share premium at the time of the issuance of the preference shares is P300,000.
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