ExpertMedium2 marksMultiple Choice
ACCA · Question 17 · Preparing Basic Financial Statements
Section A
Gamma PLC has 1,000,000 ordinary shares of $0.50 each in issue. The share premium account has a balance of $300,000. The company makes a 1-for-4 bonus issue, utilizing the share premium account.
What is the balance on the share premium account immediately after the bonus issue?
Section A
Gamma PLC has 1,000,000 ordinary shares of $0.50 each in issue. The share premium account has a balance of $300,000. The company makes a 1-for-4 bonus issue, utilizing the share premium account.
What is the balance on the share premium account immediately after the bonus issue?
Answer options:
A.
$300,000
B.
$175,000
C.
$50,000
D.
$0
How to approach this question
Calculate the number of new shares issued. Multiply by the nominal value per share to find the amount capitalized. Deduct this amount from the share premium account.
Full Answer
B.$175,000✓ Correct
Current shares = 1,000,000. Bonus issue is 1 for 4, so 250,000 new shares are issued.
The nominal value of these shares is 250,000 × $0.50 = $125,000.
This $125,000 is transferred from Share Premium to Share Capital.
New Share Premium balance = $300,000 - $125,000 = $175,000.
Common mistakes
Deducting the number of shares (250,000) directly from the dollar value of the share premium account.
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