Capitalizing non-distributable reserves for bonus issue maximizes remaining distributable reserves Steps:

• Existing shares: 400,000; bonus ratio 1:4 yields 100,000 new shares at $1 par value, requiring$100,000 capitalization.
• Fund bonus entirely from revaluation reserve (allowed under accounting standards for unrealized gains) to preserve other reserves.
• Revaluation reserve after: $300,000 -$100,000 = $200,000.
• Distributable reserves total: share premium 200,000 + retained earnings 350,000 (adjusted for maximum per standard formula).