Disadvantages of Right Issue.
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Company AccountsQ-3 | Bonus Issue and Right IssueQuestion 5244 of 112
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Detailed Solution & Explanation
Disadvantages of Right Issue are as follows:
Despite the considerable advantages offered by the right issue, it invariably leads to
dilution in the market value of the shares of the company and has following disadvantages:
1. It results in decrease in Earning Per Share,
2. If the shareholders renounce the right shares, it results in dilution of their rights.
3. Limited amount of funds can be raised as capital by way of right shares depending
on the existing equity value of the firm as prescribed by SEBI.
4. A right issue by a company is often viewed suspiciously by the share- holders as a
precursor to negative trends.
About This Chapter: Partnership & Companies
Paper
Paper 1: Accounting
Weightage
15-20%
Key Topics
Admission, Retirement, Death, Shares, Debentures
This chapter covers Admission, Retirement, Death, Shares, Debentures and is part of Paper 1: Accounting in the CA Foundation exam.
View Official ICAI SyllabusExam Strategy Tip
This topic carries 15-20% weightage. Focus on understanding core concepts rather than memorizing.
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Re-issue of forfeited shares is allotment of shares but not a sale. [May 2018, 2 Marks]
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