Page 119 - Accountancy_F5

though the number of shares changes. Therefore, in the investment account, only the
face value of the bonus shares is recorded in the nominal column on the debit side.

Example 4.1
On 1 April 2023, Zitendwa Ltd., purchased 2,000 ordinary shares of TZS 2,000
st
each from Mkakati Plc at TZS 4,800,000. On 1 August 2023, Mkakati Plc issued
st
FOR ONLINE READING ONLY
bonus shares of 1 share for every 5 shares held. Recording of these transactions in
the investment account of Zitendwa Ltd will be as follows:

Solution 4.1
In the books of Zitendwa Ltd
Dr Cr
LANGUAGE EDITING
Common shares account
Nominal Income Capital Nominal Income Capital
Particulars
Particulars TZS TZS TZS TZS TZS TZS

1 Apr. 2023 4,000,000 4,800,000
st
Bank

st
1 Aug. 2023 800,000
Bonus issue

Workings:
1. The nominal value of the Bonus issue = 1 # 2000 share# TZS 2000 =
5
TZS800,000
2. The nominal or stated value of shares is only 4,000,000 (that is 2000 shares
@ TZS 2,000 each). However, those shares were bought at a value of TZS
4,800,000 which is higher than the nominal value that is at a premium. This is
probably because the buyer had perceived a higher future return.

Rights issue
Rights issue of shares occurs when the company issue new shares, but the privilege
is given to the existing shareholders, as their right. This gives existing shareholders
an option of either buying them (exercising his/her right) or passing it over to another
investor for consideration. In case an investor exercises the right, the nominal value and
the amount paid are recorded in the nominal column and capital column, respectively,
on the debit side of an investment account.
Example 4.2
On 1 Jan 2023 Hasa Ltd purchased 2,000 ordinary shares of Sasa Plc of TZS
st
1,000 each, at TZS 2,500,000. On 1 September 2023, Sasa Plc gave the existing
st
shareholders a right to buy 1 new share for every 2 shares held, at TZS 800 each. If

Student’s Book Form Five
106

23/06/2024 17:35
ACCOUNTANCY_DUMMY_23 JUNE.indd 106
ACCOUNTANCY_DUMMY_23 JUNE.indd 106 23/06/2024 17:35