I n t e r a c t I v e t e X t foundations in Accountancy/ acca financial accounting (ffa/FA) bpp learning Media is an acca approved Content Provider

QUESTION 

Share issue

 

AB Co issues 5,000 50c shares for $6,000. What are the entries for share capital and share premium in 

the statement of financial position? 

 

Share capital 

Share premium 

A $5,000 

$1,000 

B $1,000 

$5,000 

C $3,500 

$3,500 

D $2,500 

$3,500 

ANSWER 

Did you notice that the shares are 50c each, not $1? The shares were issued for $1.20 each 

($6,000/5,000 shares). Of this, 50c is share capital and 70c is share premium. Therefore option D is 

the correct answer. 

 

 

 EXAM FOCUS POINT 

The share premium account cannot be distributed as a dividend under any circumstances. 

BPP Tutor Toolkit Copy

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PART F: PREPARING BASIC FINANCIAL STATEMENTS 

 

336

 

3.2 Revaluation surplus 

The result of an upward revaluation of a non-current asset is a 'revaluation surplus'. This reserve is non-

distributable, as it represents unrealised profits on the revalued assets. It is another capital reserve. The 

relevant part of a revaluation surplus can only become realised if the asset in question is sold, thus 

realising the gain. The revaluation surplus may fall, however, if an asset which had previously been 

revalued upwards suffered a fall in value in the next revaluation. 

3.3 Reserves 

In most countries, a distinction must be made between the following. 

(a)