Question 3. Financing of the transaction (30 marks)

You are a financial consultant and have been asked by the Board of the acquiring company you selected to provide advice on equity financing, specifically the issue of shares. Your advice
should take into account the company’s current consolidated financial statements. Write a report
advising the management board on the following:

A. Describe the various types of shares which the company issued to raise capital. Illustrate your answer with relevant examples (including the composition of the amount of capital
raised by each type of shares) as shown in respective section in the Balance sheet.

B. Based on your assessment of the company’s financial statement, what is your advice to the Board of Directors in considering a rights issue. Provide a clearly argued rationale consistent with the relevant IAS (International Accounting Standards) and the company’s
financial structure.

C. Explain the accounting treatment of the shares issue if the issued shares are undersubscribed due to the current impact of COVID–19 pandemic affecting many economies across the world. How will this affect the company’s shareholders? How will this be different if you advice on the issue of a convertible debenture on the company’s capital structure and the shareholders?

D. What is your comment on your case study company’s equity capital when you compare its two consecutive financial years?