Self-test The following balances were taken from the accounts of Khan plc on 30 November 2008.

£1 ordinary shares 280,000

£1 6% preference shares 180,000 General reserve 90,000 Share premium 140,000 Land and buildings (land £350,000) 800,000 During the month of December 2008 the following took place.

(i) On 1 December 2008 a one for four rights issue was made at a premium

£0.50 per share. Shareholders took up the full rights issue. On the same date, a further 50,000 £1 6% preference shares were issued.

(ii) A proposed dividend of 20% on the ordinary share balance as at 31 December 2008 utilising the general reserve was declared.

(iii) An independent surveyor revalued land to £450,000.

Required:

(a) Journal entries to record each of (i) to (iii) above (narratives are not required).

(b) The Capital and Reserves section of the Balance Sheet as at 31 December 2008.

(c) Explain the differences between a bonus issue and a rights issue.

(d) Discuss why a company might decide to make a bonus issue of shares.

(OCR Accounting (F004) Jan 2009)