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Task 2
An extract of Willow Co’s trial balance as at 30 June 20X1 is shown below.Equity shares, $1: 72000 CR
Share premium: 13000 CR
Revaluation surplus at 1 July 20X0: 10000 CR
Retained earnings at 1 July 20X0: 12920 CR
Dividends paid: 3,000 DRDuring the year ended 30 June 20X1, Willow Co made a ‘1 for 5’ bonus issue.
Complete the following table to identify the accounting entries required to record the bonus issue….
-The question looked something like this and the answer was: DR. Share premium $12000 CR. Share capital $12000
I am not convinced by this answer, I think the amounts should have been $14400. Please help clarify what the correct answer should be.
The answer is correct.
The reason is that the 72,000 shares is the number as at 30 June X1. The bonus issue was made during the year and so the bonus issue is included in the total of 72,000.
For every 5 shares at the start of the year, there was a bonus issue of 1 share, and therefore there were 6 shares at the end of the year.
So the bonus issue was 1/6 times the number of shares at the end of the year, and is therefore 1/6 x 72,000 = 12,000 shares.
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