Which of the following can the Share Premium account legally be used for?

Answer options:

To pay cash dividends to shareholders

To write off bad debts

To issue fully paid bonus shares

To cover a loss on the disposal of a non-current asset

How to approach this question

Recall the legal restrictions on non-distributable reserves like Share Premium.

Full Answer

C.To issue fully paid bonus shares✓ Correct

The Share Premium account is a capital reserve and is non-distributable. It cannot be used to pay cash dividends or absorb trading losses. One of its main legal uses is to fund a bonus issue of shares.

Common mistakes

Thinking share premium can be used to pay dividends if retained earnings are low.

Question 27 All questions Question 29

Practice the full ACCA FA — Financial Accounting Practice Exam 2

65 questions · hints · full answers · grading

More questions from this exam

Q01BioGenix Ltd, a biotech startup, is deciding whether to disclose a highly uncertain contingent li...Easy Q02Which of the following bodies is primarily responsible for issuing International Financial Report...Easy Q03Which of the following are the primary responsibilities of the directors of a limited liability c...Medium Q04Titanium Forge Co, a heavy manufacturing firm, recently incurred the following costs: 1. $50,000 ...Medium Q05A company makes a 1 for 4 bonus issue of shares. The nominal value of the shares is $1. The compa...Medium

View all 65 questions →