How can stock dividend reduce reserves and increase share capital?
Because it transfers stocks from the treasury (reserve) to the shareholders (common equity).
But they are not paying anything in cash so how reserve reduces?
and in stock dividend they only issue more stocks so how can share capital will increase?
When a company issues a stock dividend, the market price of the new shares is deducted from retained earnings and added to contributed capital.
Great thanks!!!
My pleasure.
Accounting treatment will be: Dr Retained earnings (reduction) and Cr Share capital (increase)
And how the book value of shares will get affected by paying dividend?