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CS Executive · Corporate Accounting and Financial Management · Related Aspects of Company Accounts

Arjun Textiles Ltd has 2,00,000 equity shares of Rs 10 each fully paid. It announces bonus shares in the ratio 1 for every 4 held, out of general reserve. What is the debit to General Reserve and the resulting paid-up equity share capital?

General Reserve is debited Rs 5,00,000 and paid-up capital becomes Rs 25,00,000. One bonus share for every four held gives 50,000 new shares of Rs 10 each, so Rs 5,00,000 is transferred from reserves to share capital, added to the existing Rs 20,00,000.

  1. ADebit Rs 5,00,000; capital Rs 25,00,000Correct
  2. BDebit Rs 5,00,000; capital Rs 20,00,000
  3. CDebit Rs 2,00,000; capital Rs 22,00,000
  4. DDebit Rs 20,00,000; capital Rs 25,00,000

Explanation

Bonus shares = 2,00,000/4 = 50,000 shares. Amount capitalised = 50,000 x 10 = Rs 5,00,000, debited to General Reserve. Capital becomes 20,00,000 + 5,00,000 = Rs 25,00,000. Rs 20,00,000 capital would ignore the bonus credit.

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