A company with 400,000 ordinary shares of £1 makes a 1 for 4 bonus issue funded from the share premium account. What is the entry?
Answer and explanation
Correct answer: A. Debit share premium £100,000, credit share capital £100,000
- Step 1: 1 new share for every 4 held: 400,000 / 4 = 100,000 new shares at £1 nominal = £100,000.
- Step 2: No cash is received in a bonus issue, so the share capital is credited by capitalising a reserve.
- Step 3: Debit the reserve (share premium) £100,000 and credit share capital £100,000.
Answer
Debit share premium £100,000, credit share capital £100,000.
Why not the others: A bonus issue raises no cash, so bank is not debited. £400,000 is the total existing shares, not the number of new shares. A bonus issue involves no payment of cash, so bank is not credited.
Practise more Preparing financial statements.
Free questions with an explanation for every one, and full timed ICAEW ACA Certificate Level mock tests.
More Preparing financial statements questions
- A sole trader has the following for the year: sales £180,000, sales returns £4,000, opening inventory £12,000, purchases £96,000, purchases…
- Using the gross profit of £84,000, a sole trader's other items are: wages £31,000, rent £12,000, depreciation £5,400, irrecoverable debts £9…
- A sole trader began the year with capital of £50,000, made a net profit of £35,900, took drawings of £18,000 and introduced a further £5,000…
- Where is carriage outwards (the cost of delivering goods to customers) shown in a sole trader's financial statements?
- At the year end a business has total assets of £120,000 and total liabilities of £45,000. What is the owner's capital?
- A sole trader's balances at the year end are: freehold property £180,000, vehicles at carrying amount £24,000, inventory £18,500, trade rece…