The appropriate accounting entry to record the declaration of a bonus share issue out of the Revaluation Surplus account is which of the following?
A) DR Bonus dividend CR Revaluation surplus
B) DR Revaluation surplus CR Cash
C) DR Revaluation surplus CR Share capital
D) DR Cash CR Share capital

Question

Quizplus · Accepted Answer

When a bonus share issue is declared, it means that the company is issuing additional shares to its shareholders without any additional payment. The source of these new shares is the revaluation surplus account, which is a reserve account created when a company revalues its assets. Therefore, the appropriate accounting entry to record the declaration of a bonus share issue out of the revaluation surplus account is to debit the revaluation surplus account and credit the share capital account. This increases the number of shares outstanding but does not affect the assets or liabilities of the company. Option A and B are incorrect because they do not reflect the source of the new shares, and option D is incorrect because it implies the company is receiving cash for the bonus issue, which is not the case.

The Appropriate Accounting Entry to Record the Declaration of a Bonus