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Harlem Co has issued shares during the year via a bonus issue. Share capital within equity should increase by the value of the shares and a reserve should decrease accordingly (solution from kit harlem co)
sir can u tl how share capital increases when there is bonus issue?it is supposed to remain same when there is bonus issue ryt?
Welcome to my forum!
Total equity remains the same but share capital increases.
The other name for bonus issues is “capitalisation issue” – i.e. it “capitalises” (makes permanent) reserves that could otherwise be distributed:
Dr Retained earnings
Cr Share capitalSome non-distributable reserves can also be used for bonus issues – e.g. a share premium account (you may remember from LW studies that this is not distributable):
Dr Share premium
Cr Share capitalWhereas a rights issue would include a “Dr Cash” entry, a bonus issue is a journal entry that transfers the amount of the bonus issue from one component of equity to another – i.e. within the Statement of Changes in Equity.
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