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May 1, 2020 at 8:45 am
Hi john, I am really confused on how we came about 0.75 which was later multiplied by 250,000 to get the share premium 187,500
John Moffat says
May 1, 2020 at 10:31 am
The difference between the issue price and the nominal value (both of which are given in the question).
September 28, 2019 at 10:13 pm
A company may choose to use the retained earnings reserve if it wants
Even though it may also have a share premium account balance, it may still choose to use the retained earnings reserve
Practically, it doesn’t make commercial sense! There are very restrictedd uses of the share premium account and financing the issue of fully paid bonus shares to existing members is the one most likely to be used
If the company chooses to use retained earnings (a distributable reserve) to finance the issue of fully paid bonus shares instead of using the share premium account (a non-distributable reserve) the effect is, as John has pointed out, to reduce distributable profits ie the amount that the company is legally able to pay to shareholders by way of a dividend
But, as both John and I have said, if the company wishes to do that … fine
September 28, 2019 at 5:11 am
Within the Statement of Changes in Equity there are separate columns for each of the component elements of equity – one for share capital, one for share premium, another for revaluation reserve and so on
When a company chooses to make a bonus issue, clearly the share capital column amount will increase by the nominal value of those bonus shares
But, at the same time and by the same amount, one of the other columns will decrease. Ideally, the reserve that is used to finance the bonus issue will be the share premium reserve but, if the company doesn’t have a share premium account (and therefore no share premium reserve) it is able to finance the issue out of retained earnings
September 28, 2019 at 8:02 am
Yup i understand, but this is when the company don’t have share premium account right?, but this company do have share premium account and when i said the company use the retained earning to bonus issue what i meant is, only some portion of retained earning the rest is share premium. Pls explain it?
September 28, 2019 at 9:52 am
As Mike replied before, if there is a bonus issue then one of the reserves must be reduced. If there is a share premium account then it makes sense to reduce the share premium account (because, as I explain in the lecture) reducing retained earnings means there is less available for dividends. It is up to the company which reserve they reduce, but in the exam you will always use the share premium account if there is one.
September 27, 2019 at 9:03 pm
Hi, i’m confused here. Do the company can use retained earning to issue, bonus issue to shareholder. If can’t why when i read statement change in equity in some companies, the company use retained earning when issue bonus to shareholder. Hope you give explanation, thank you.
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