The directors decide to make a bonus issue of shares on the basis of one share for every four shares held. The directors have decided to utilize all the company’s reserves equally.
|
Equity |
£ |
|
Ordinary shares of £1 each |
12,000,000 |
|
Revaluation reserve |
2,000,000 |
|
Profit and loss account |
5,000,000 |
|
19,000,000 |
This means that the company will be creating ¼ × 12,000,000 = 3,000,000 bonus shares of £1 each. It will also mean that the company has to reduce its reserves by an equivalent amount. After the bonus issue, the equity section of the balance sheet will be.