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JAMB Principles of Accounts 2000 Question 27

Question 27

Company Accounts

Didi Ltd offered 10,000 ordinary shares of ₦1.50 each at a discount of 2% which were fully subscribed. With regard to the offer above,

  1. A.shares are never offered at a discount; the offer is invalid
  2. B.the value of shares in the capital account will be lowered by 2%
  3. C.the company incurs a loss to the tune of 2% of the offer
  4. D.each of the subscribers loses 2% of investment.
Show the answer and explanation

Answer: C (the company incurs a loss to the tune of 2% of the offer)

Explanation

The company receives 2% less than the nominal value of the shares. The ₦300 discount (10,000 × ₦1.50 × 2%) is a capital loss to the company, debited to a discount on shares account; share capital is still recorded at full nominal value.