Question

ABC SAOG declared a 3 for 2 bonus issue.

The following is the abstract of SOFP before the bonus issue:
Share capital consisting of ordinary shares of RO 0.500 each, RO 2,000,000
Share Premium Account RO 1,000,000
Revaluation Reserve RO 1,500,000
General Reserve RO 800,000
Retained Profits RO 5,000,000
The Company’s policy for the purpose of accounting for bonus issue is not to use revaluation reserve whereas retained profits should only be used if other reserves are exhausted.
State the journal entries required to account for the above transactions and prepare extract of the SOFP after bonus issue.

Answer 1

To account for the bonus issue, journal entries are made to increase share capital and reduce retained earnings. The extract of SOFP after the bonus issue shows revised Share Capital and Retained Profits accounts.

Step-by-step explanation:

To account for the bonus issue, the following journal entries are required:

1. To record the increase in share capital:
   Share Capital Dr. RO 1,000,000
   Share Premium Account Dr. RO 1,500,000
   To Bonus Issue
   Share Capital Cr. RO 500,000
2. To record the reduction in retained earnings:
   Retained Profits Dr. RO 500,000
   To Bonus Issue
   Retained Profits Cr. RO 500,000

After the bonus issue, the extract of SOFP will show the revised Share Capital and Retained Profits accounts along with the other existing reserves.