CS Executive · Corporate Accounting and Financial Management · Accounting for Share Capital
Meera Textiles Ltd has 4,00,000 equity shares of Rs 10 each, fully paid. It declares bonus shares in the ratio 1:5 out of free reserves, all conditions being met. What amount is debited to free reserves?
Rs 8,00,000 is debited to free reserves. A 1:5 bonus on 4,00,000 shares gives 80,000 new shares, and at Rs 10 face value the capitalised amount is Rs 8,00,000, transferred from free reserves to equity share capital.
- ARs 8,00,000Correct
- BRs 4,00,000
- CRs 40,00,000
- DRs 80,000
Explanation
Bonus shares = 4,00,000 x 1/5 = 80,000 shares. Amount capitalised = 80,000 x Rs 10 = Rs 8,00,000, debited to free reserves and credited to equity share capital. Rs 80,000 is the number of shares, not the value.
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