Bonus Issue Capitalizes Reserves Without Affecting Net Assets

Steps:

• Identify bonus issue as issuing free shares to existing shareholders from reserves, not new funds.
• Calculate new shares: for every 5 held, 1 bonus share issued, increasing total shares by 20%.
• Record transaction: debit reserves (e.g., retained earnings) with nominal value of bonus shares, credit share capital with same amount.
• Assess impacts: share capital rises by nominal value, reserves fall by same, total equity and net assets unchanged.

The options do not fully capture the effect; correct is share capital increases, reserves decrease, net assets no change. Why none match:

• A wrong: reserves decrease, not increase.
• B wrong: reserves decrease; net assets unchanged, not increase.
• C wrong: share capital increases, not no change; reserves decrease, not increase.
• D wrong: share capital and reserves both change via internal transfer.

Not enough information in options to select one accurately.

Final answer: None of the options