ExpertEasy2 marksMultiple Choice
ACCA · Question 28 · Preparing basic financial statements
Which of the following can the Share Premium account legally be used for?
Which of the following can the Share Premium account legally be used for?
Answer options:
A.
To pay cash dividends to shareholders
B.
To write off bad debts
C.
To issue fully paid bonus shares
D.
To cover a loss on the disposal of a non-current asset
How to approach this question
Recall the legal restrictions on non-distributable reserves like Share Premium.
Full Answer
C.To issue fully paid bonus shares✓ Correct
The Share Premium account is a capital reserve and is non-distributable. It cannot be used to pay cash dividends or absorb trading losses. One of its main legal uses is to fund a bonus issue of shares.
Common mistakes
Thinking share premium can be used to pay dividends if retained earnings are low.
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