The following is the summarized statement of financial position of Shares Ltd as at 31 December 20X9:

In order to improve the company’s liquidity and consolidate the capital position the following steps were taken:
1. A bonus issue of equity shares fully paid was made to the existing shareholders of two shares for every five shares held.
2. The authorized share capital was increased from 500,000 equity shares of £1 each to 1,000,000 equity shares of £1 each.
3. An issue of 250,000 equity shares was made at a premium of 10 per cent, 55p payable on application and 55p payable on allotment.
4. The debenture stock was redeemed in cash at a premium of 5 per cent. The transactions took place as follows:

All applications for shares were reduced pro rata and the excess funds received were retained on account of the amounts due on allotment.

Required
a. Show by journal entries, including cash, the entries necessary to record the above transactions;
b. Prepare a statement of financial position to show the effect of the above proposal on the liquidity of the company.

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ASSETS Non-current assets Current assets Total assets EQUITY AND LIABILITIES Equity 250,000 equity shares of £1 each fully paid Retained earnings Total equity Non-current liabilities 11 per cent debenture stock Current liabilities Total equity and liabilities £'000 695 865 1,560 250 125 375 50 1,135 1,560