Given information for questions 3 to 4: Nang’wam Ltd has a financial year end of

Question

Given information for questions 3 to 4:

Nang’wam Ltd has a financial year end of 31 January. The company has the following share capital structure:

Authorised share capital: 500 000

ordinary shares 200 000 10% preference shares

Issued share capital:

350 000 ordinary shares valued at R550 000, 150 000 of these shares remained unchanged for the full year while the remainder was allotted and issued on 1 January 2018 at a consideration of R400 000 by an underwriter at a 1.5% commission which was paid on the same date. However, 210 000 applications were received for these shares.

120 000 10% preference shares, 60 000 of these shares remained unchanged for the full year and were issued for R120 000 while the remainder were allotted and issued on 31 July 2017 at a consideration of R180 000.

On 31 January 2018, the board of Nang’wam Ltd decided to issue capitalisation shares to ordinary shareholders in the ratio of 1 share for every 4 ordinary share held at R2,20 per share. The capitalisation issue to ordinary shareholders was funded from retained earnings.

The preference shareholders were paid a cash dividend.

According to the company’s solvency and liquidity test, it had sufficient cash and retained earnings to pay the dividends to ordinary and preference shareholders.

QUESTION 3

Which one of the following alternatives represents the correct amount of commission paid to the underwriter for the issue of ordinary shares as at 1 January 2018?

1. R2 250

2. R6 000

3. R10 500

4. R3 000

Explanation / Answer

Commission paid to the underwriter for the issue of ordinary shares as at 1 January 2018 = R400,000 x 1.5% = R6000
Option 2 is the correct option

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