Rights Issue as Equity Financing

Steps:

• Rights issue allows existing shareholders to subscribe for new ordinary shares at a discount or premium.
• Proceeds received are split: nominal value to share capital, excess to share premium account.
• Both increase total equity, appearing in the statement of financial position under equity section.
• Transaction records as an equity issuance movement in the statement of changes in equity.

Why A is correct:

• Under IAS 32, rights issues of ordinary shares are equity instruments, increasing share capital and premium in equity, with movements disclosed in changes in equity.

Why the others are wrong:

• B: Omits required disclosure of the issuance as a movement in changes in equity.
• C: Misclassifies equity as a non-current liability, violating equity definition.
• D: Falsely treats entire proceeds as liability, ignoring equity nature.

Final answer: A