ACCA Applied Knowledge · Financial Accounting · Capital structure and finance costs
Zeta Co has 400,000 ordinary shares of $1 each and a share premium account of $150,000. It makes a 1 for 4 bonus issue, funded from the share premium account. What is the balance on the share premium account after the issue?
The share premium balance is $50,000. A 1 for 4 bonus issue on 400,000 shares creates 100,000 new $1 shares, so $100,000 is transferred from share premium to share capital, leaving $150,000 minus $100,000.
- A$50,000Correct
- B$100,000
- C$0
- D$250,000
Explanation
A 1 for 4 bonus issue gives 400,000 / 4 = 100,000 new shares at $1 nominal, so $100,000 is capitalised. The share premium falls from $150,000 to $50,000. Using $150,000 less nothing ($100,000 remaining) is wrong, as it reverses the deduction; $250,000 wrongly adds the amount.
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