As at the end of the year the Equity and reserves of a public limited company is made up of amounts stated. The directors have resolved to make a scrip issue of one for every five shares, taking care, however, to protect the amounts available for distribution to shareholders.

Required:

(a) Taking note of the directors’ wish, explain how you would write off the cost of the scrip issue.

(b) Set out the Equity and reserves section of the company’s Statement of financial position as at the year-end, after the scrip issue has been made.

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Ordinary shares of £1 Share premium a/c Revaluation reserve Retained earnings £500,000 £90,000 £54,000 £168,000