Page 217 - Microsoft Word - 00 BA3 IW Prelims STUDENT.docx

Accounting for the issue of shares

Illustration 3

Suppose an entity had the following share capital and reserves balances
immediately prior to making a bonus issue:

$
Share capital ($0.50) 80,000
Share premium 15,000
Retained earnings 170,000
–––––––
Total equity 265,000

If it made a bonus issue of '1 for 5' it would issue 32,000 new shares
(($80,000 × 2) / 5) with a nominal value of 50c per share, giving a monetary
value of $16,000

The accounting entries to record the bonus issue would be as follows:
$
Debit Share premium (use first as far as possible) 15,000
Credit Retained earnings (use if insufficient share premium) 1,000
Credit Share capital account (32,000 × 50c) 16,000

The resultant share capital and reserves balances would be:

$
Share capital ($0.50) 96,000
Share premium Nil
Retained earnings 169,000
–––––––
Total equity 265,000

Illustrations and further practice

211