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I have an extract concerning cash from financing activities section.
The share capital and share premium accounts bf and cf were ;
Bf share capital $400k and cf $500k
bf premium $70k and cf $90k
The extract on the note says – During the year the entity made a bonus issue from share premium account of one for every ten shares held. Later the entity made a further share issue for cash .
Solutions;
share capital
Equity capital b/f $400k
Bonus issue (from share premium) $40k
difference : issue for cash $60k
Equity capital c/f $500kshare premium b/f $70
Bonus issue (40)
= $30k + $60k ( difference is premium on issue of equity)
Share premium c/f $90ktotal cash proceeds of issue (60+60) = $120k
My question : The bonus issue of 1 for every 10 shares held that gave a debit $40 which automatically leads to a credit on share capital $40k , how do they get that $40k?
Hi,
Assuming that the equity shares have a par value of $1, then there are 400,000 of them in issue. If one share is issued for every ten then there will be 40,000 issued (400,000/10) at their par value of $1, and thus $40,000.
Thanks
The extract on the note says – During the year the entity made a bonus issue from share premium account of one for every ten shares held.
I was actually looking the share premium account . I never taught its from the share capital of 400,000 shares. I gazed my eyes to the 70,000 share premium account .
The share was not issued for cash and was from the premium account and this consequently means we have to debit the share premium account and credit the share capital account.I think my problem is inability to interpret question effectively.
Thank you.
Hi,
You’re welcome. The questions need to be read very carefully but that will come with further practice.
Thanks
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