What is the journal entry to issue bonus shares from share premium to share capital?

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Study for the AAT Level 4 Drafting and Interpreting Financial Statements exam. Utilize flashcards and multiple choice questions with detailed explanations and hints. Prepare to ace your exam!

Multiple Choice

What is the journal entry to issue bonus shares from share premium to share capital?

Explanation:
Issuing bonus shares from share premium moves value within equity: you use a reserve (share premium) to increase the issued share capital, with no cash involved. The appropriate entry is to debit the share premium and credit the share capital for the nominal value of the new shares being issued. This reflects reducing the reserve and increasing the share capital by the same amount. So the correct entry is to debit Share Premium and credit Share Capital. The other options would either involve cash, reverse the direction of the change (reducing share capital or increasing the premium), or use a different source of funds (retained earnings) not described in this scenario.

Issuing bonus shares from share premium moves value within equity: you use a reserve (share premium) to increase the issued share capital, with no cash involved. The appropriate entry is to debit the share premium and credit the share capital for the nominal value of the new shares being issued. This reflects reducing the reserve and increasing the share capital by the same amount.

So the correct entry is to debit Share Premium and credit Share Capital. The other options would either involve cash, reverse the direction of the change (reducing share capital or increasing the premium), or use a different source of funds (retained earnings) not described in this scenario.

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