A Level Accounting (9706)•9706/11/M/J/19
Explanation
Bonus Issue Capitalization from Reserves
Steps:
- Original shares: 2,000,000 at 1,000,000 share capital.
- Bonus issue ratio 3:4 means 1,500,000 new shares issued.
- Nominal value of bonus shares: 1,500,000 × 750,000.
- Fund from share premium first (150,000).
Why A is correct:
- Retained earnings debited for shortfall after exhausting share premium, as bonus issues capitalize reserves starting with premium per accounting standards (e.g., IAS 39/IFRS 9 principles).
Why the others are wrong:
- B: $75,000 understates by factor of 10, possibly misapplying share count or ratio.
- C: $9,000 ignores scale, likely erroneous small fraction of premium.
- D: $15,000 too low, perhaps confusing premium portion or ratio miscalculation.
Final answer: A
Topic: Preparation of financial statements
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