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 ordinary share capital as a result of conversion?
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 ordinary share capital as a result of conversion?
Solution
The conversion of preference shares into ordinary shares will affect the ordinary share capital account. Here's how to calculate the amount to be credited:
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Determine the number of ordinary shares that the preference shares will be converted into. In this case, one preference share can be converted into three ordinary shares. So, 15,000 preference shares will be converted into 15,000 * 3 = 45,000 ordinary shares.
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Determine the par value of the ordinary shares. In this case, the par value is P50 per share.
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Multiply the number of ordinary shares by the par value to find the amount to be credited to the ordinary share capital account. So, 45,000 shares * P50/share = P2,250,000.
Therefore, P2,250,000 should be credited to the ordinary share capital as a result of the conversion.
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