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I have a question from kaplan kit.
An extract of willow co’s trial balance as at 30 june 20X1 is shown below
Equity share capital @1 each 72,000 cr
Share premium 13,000 cr
Revaluation surplus at 1 july 20X0 10,000 cr
Retained earning at 1 july 20X0 12,920 cr
Dividend paids 3,000 drDuring the year ended 30 june 20X1, Willow co made a 1 for 5 bonus issue. Entries required to record the bonus issue.
Answer given in the kit is 12,000. Can anyone explain me how?
If you ask in this forum, then ‘anyone’ will always be me 🙂 🙂
Because of the bonus issue during the year, then for every 5 shares there were before there will now be an extra 1 and therefore there will now be 6 shares at the end of the year.
At the end of the year there were 72,000 shares (and this was after the bonus issue) and so before the bonus issue there must have been 5/6 x 72,000 = 60,000 and the bonus issue must have been for 1/5 x 60,000 = 12,000 shares.
Because the question says that it is a 1 for 5 bonus issue!
Therefore for every 5 shares they issued 1 new share.
Have you watched my free lectures on bonus and rights issues? The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.
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