ACCA F3 Capital Structure
P Co makes a 1 for 5 bonus issue, using the share premium account to the extent that it is possible. Immediately before the bonus issue, P Co had the following equity balance.
| $ | |
| Share Capital ($1 share) | 250,000 |
| Share premium | 36,000 |
| Retained earnings | 120,000 |
What is the balance on the retained earnings after the bonus issue has been recorded ?
Suggested Solution:
| Share Capital | No of shares at $1 | $'000 | |
| Original | $1 Ordinary Shares | 250,000 | 250,000 |
| Bonus 1 for 5 | 50,000 | 50,000 | |
| Total | 300,000 | 300,000 |
| Ordinary shares | Share premium | Retained earnings | |
| Original | 250,000 | 36,000 | 120,000 |
| Bonus 1 for 5 | 50,000 | (36,000) | (14,000) |
| Balance | 300,000 | 0 | 106,000 |
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