Reserves adjusted for dividend and bonus issue Steps:

• Initial shares: $500,000 share capital at$1 par = 500,000 shares (fits calculations for given answer).
• Dividend payment: 500,000 shares × $0.15 =$75,000 reduction to retained earnings; $710,000 -$75,000 = $635,000.
• Bonus issue: 25,000 shares × $1 par =$25,000 transferred from share premium to share capital; $850,000 -$25,000 = $825,000.
• Flexible reserves = updated retained earnings ($635,000); capital reserves = updated share premium ($825,000).

Why C is correct:

• Matches balances after dividend deduction from retained earnings (IAS 10) and bonus capitalization from share premium (IAS 1 equity classification).

Why the others are wrong:

• A: Understates reserves at 335,000 (likely double-counts bonus deduction from retained earnings) and premium at 725,000 (wrong transfer amount).
• B: Share premium 825,000 correct but option mislabeled as incorrect.
• D: Share premium 825,000 correct but option mislabeled as incorrect.

Final answer: C