Accounting Multiple Choice Question – 25 July 2022

A company made a bonus issue of shares on the basis of 1 for every 3 held.

The directors wish to keep the reserves in the most flexible form.

Balance Sheet extract (before bonus issue) – capital and reserves £000s

• ordinary shares £0.20 each – £900k
• share premium – £100k
• revaluation reserve – £170k
• retained profits £130k
• Total Capital and Reserves – £1,300k

What will be the position after the bonus issue?

Select ONE answer:

1. Share capital – £1,200k / Share premium – NIL / Revaluation reserve – NIL / Retained profits – £100k
2. Share capital – £1,200k / Share premium – NIL / Revaluation reserve – £70k / Retained profits – £30k
3. Share capital – £1,200k / Share premium – NIL / Revaluation reserve – £100k / Retained profits – NIL
4. Share capital – £1,200k / Share premium – £100k / Revaluation reserve – NIL / Retained profits – NIL

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 1

1. Correct – £900K / 3 = £300k ==> £100k from share premium , £170k from revaluation reserve & the last £30k from retained profits
2. Not correct
3. Not correct
4. Not correct

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