Timmy Plc is making a bonus issue of 2 new ordinary shares for every 5 already held. The shares have a par value of 5 pence. Timmy plc currently has 500,000,000 ordinary shares in issue. What is the correct double entry required to record this transaction in the company's books of account?

Question

Quizplus · Accepted Answer

The correct double entry to record a bonus issue involves debiting retained earnings for the nominal value of the new shares issued and crediting share capital by the same amount. In this case, with 2 new shares for every 5 held, Timmy Plc is issuing 200,000,000 new shares (2/5 of 500,000,000). With a par value of 5 pence each, the total value is £10,000,000 (200,000,000 shares * £0.05). Therefore, retained earnings are debited by £10,000,000, and share capital is credited by the same amount.

Timmy Plc Is Making a Bonus Issue of 2 New