Reference no: EM132739792

Question - Grubber Limited is contemplating between a rights and a bonus issue. On January 1, 2019 the entity had retained earnings of $125 million before any of the aforementioned rights or bonus issue of shares. On the said date the entity had 200 million ordinary shares with par value of $0.50 each before the rights or bonus issue. It also had cash before the issue (rights or bonus) of any shares amounting to $200 million. The only other assets were inventory and building with carrying values of $20 million and $280 million respectively as at December 31, 2019. However, on March 31, 2019 the directors decided to make a bonus issue of one new share for every four existing held on January 1, 2019. On June 30, 2020 they made a rights issue of one for five shares at $2 per share. The entity had share premium before the rights or bonus issue of shares amounting to $165 million. On December 31, 2019, the entity declared dividends of $0.20 per share held at the last day of the reporting period. The reporting date is December 31st of each year. The aforementioned dividends are expected to be paid on February 15, 2020. The entity made net profits for the period 2019 amounting to $ 110 million before the payment of any dividends or issue of shares.

Required -

a. Outline one disadvantage of a rights issue.

b. Prepare the statement of financial position as at December 31, 2019 with the relevant journal entries if necessary for each of the adjustments made.

c. Outline the meaning of 'Control" as it relates to acquisition of assets.