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Question 9.7

  • Thread starter Neha Maheshwari
  • Start date
N

Neha Maheshwari

Member
1 - Why is 50k (accumulated depreciation) also deducted from non-current assets when its written in Chapter -8 that they include the depreciation till date.

Why isn't only 12k subtracted ?

2 - Nil-paid rights- if ex-rights price is 75p and its sold to shareholders at 50p. they will sell nil-paid rights at 25p and the one who accepts it buys at 50p which is a total of 75p. So why would he in the first place go for buying nil-paid rights when he can buy from the market at the same price?
 
When an item is revalued, the depreciation is set to zero as if the asset was sold and repurchased at the new revalued price.
I am not clear about your second question. If there was a difference between the market price and the value of the nil paid, there would be an arbitrage opportunity for a greedy hedge fund to exploit.
 
1 - There are two parts to the question one without revaluation and one before revaluation. i understand that why after revaluation the depreciation amounts to zero. However for the first part its given that non-current assets are priced at 547k and accumulated depreciation till previous year is 50k and during this year is 12k.

So before revaluation the price of non current asset is 547k. In chapter 8 its given that any non-current asset is inclusive of depreciation till date that is before that year. Which I assume from this question is 50k. And the depreciation during the year is 12k. So shouldn't the price of non current asset be just (547-12) to be included in the financial position.


2- For example , A is a shareholder and decides to give his nil-paid rights to B.

Now ex-rights price i.e after the rights issue the price is 75p and he has been offered a 1-on-1 right for 50p. So technically he can purchase the share at 50p and not 75p. Which also makes his nil-paid rights price to be 25p.

Now he sells nil-paid right to B at 25p and B holding a nil-paid right buys the share at 50p. Total cost to him is (25+50)p=75p which is equal to the price of the share at 75p. So what's the use of buying nil-paid rights to the buyer?
 
During the rights issue period the only people who can buy the shares at a discount are those who own the right to do so. The existing shareholders (ie Mr A) own these rights. If a non-shareholder (ie Mr B) wants to buy the discounted shares they must buy them from someone who is prepared to sell on their right (ie from Mr A). This may be the only way to get hold of the shares.
 
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