As at 1st January 2025, Crestwood Marine Plc had an issued share capital of 800,000 Ordinary Shares of ₦1.00 each fully paid, and a Share Premium Account balance of ₦220,000. During the year, the directors declared a 1-for-5 bonus issue of ordinary shares using the Share Premium account. Subsequently, the company wrote off preliminary expenses of ₦25,000 and share issue costs of ₦15,000 against the remaining Share Premium balance as legally permitted. Calculate the remaining balance in the Share Premium Account in Naira (₦) at the end of the year.
Answer: 20000 ₦
Answer
The remaining balance in the Share Premium Account is ₦20,000.
The Share Premium account initially had ₦220,000. Issuing 160,000 bonus shares (800,000 ÷ 5) at ₦1.00 nominal value absorbs ₦160,000 of the reserve, reducing it to ₦60,000. Statutory regulations allow companies to write off preliminary formation expenses (₦25,000) and share issue costs (₦15,000) against Share Premium, leaving a net final balance of ₦20,000 (₦60,000 - ₦40,000).
Step-by-Step Solution
Key Concept
Statutory utilization of Share Premium account for bonus issues and expense write-offs