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Question

XYZ Ltd issues 500000 new ordinary Rs 1 shares at an issue price of Rs 1.50 and makes a bonus Issue of new shares amounting to 50000 Rs 1 ordinary shares. The company also increases its authorized ordinary share capital by 550000 Rs 1 ordinary shares. By how much will the balance sheet ordinary share capital account increase?


A
Rs 800 000
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B
Rs 550 000
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C
Rs 750 000
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D
Rs 350 000
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Solution

The correct option is B Rs 550 000
The maximum amount of share capital a company is allowed to raise is called its authorised capital. Though this does not limit the number of shares a company may issue, it does put a ceiling on the total amount of money that can be raised by the sale of those shares.

Thus, XYZ Ltd. issues 5,00,000 new ordinary shares and 50,000 bonus issue which implies 5,00,000 + 50,000 = 5,50,000 (No. of shares by which ordinary share capital account increases)

Principles and Practice of Accounting

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