LW Global Chapter 18 Questions Capital Maintenance
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Q4, I am not able to understand why financing of bonus shares isn’t the right answer. Please help me understand why 2nd option and why not 1st.
Thanks
Riya
The option concerning the bonus shares specifies that the shares are to be credited as 95 cents paid. The allowable use of the share premium account re bonus shares is that it may be used to finance the issue of FULLY PAID bonus shares to existing members
Does that make sense?
Understood sir. Thank you so much!
I think there is some mistake in Q>3
we can pay bonus shares from sec prem acc
what is the reason behind that
help me ?
We cannot ‘pay’ bonus shares …
What we CAN do is finance the issue of fully paid bonus shares to existing members
The question asks about distributable reserves
The capital redemption reserve and the share premium account are the two BIG statutory capital reserves and are not distributable
But the statutory definition of non-distributable reserves includes (in its abbreviated format) ‘accumulated unrealised profits less accumulated unrealised losses’ … and clearly that includes a ‘revaluation reserve’
Better?
ahhhh okay, thanks!
Q4, which of the following is not an allowable use of the share premium account? I was under the impression that share premium accounts allow for the issue of bonus shares. Apparently, my impression was wrong, but I don’t get why. Could you give me a hint?
Cheers,
Fran.
Here’s a hint: credited as 95 pence paid
OK?