CIMA F3 Exam With Confidence Using Practice Dumps

The company is repurchasing and cancelling its own shares.

When shares are cancelled:

Share capital is reduced by the nominal value of the shares bought back. ✅

Any amount paid above nominal value reduces equity reserves (such as share premium and/or retained earnings), but it does not go through the Income Statement.

Total equity does decrease by the full repurchase amount (so option C is wrong).

No element of the repurchase (including any “premium to market value”) is treated as an expense in the Income Statement under IFRS – it’s purely an equity transaction (so D is wrong).

Option A is too specific and not strictly correct, because the premium over nominal is not necessarily all charged only to retained earnings – it can also be charged to share premium / other reserves.

So the one fully correct statement is:

B. The share capital figure would reduce by the nominal value of the shares purchased.

The company needs to raise $40 million via a rights issue.

Current share price = $10

Rights issue at a 20% discount, so issue price =

10×(1−0.20)=10×0.8=$810 \times (1 - 0.20) = 10 \times 0.8 = \$810×(1−0.20)=10×0.8=$8

Number of new shares needed:

New shares=40m8=5 million shares\text{New shares} = \frac{40\text{m}}{8} = 5\text{ million shares}New shares=840m​=5 million shares

There are currently 20 million shares in issue, so the rights issue ratio is:

New sharesExisting shares=520=14\frac{\text{New shares}}{\text{Existing shares}} = \frac{5}{20} = \frac{1}{4}Existing sharesNew shares​=205​=41​

So, shareholders will receive 1 new share for every 4 existing shares.