Company AccountsQ-1 | Bonus Issue and Right IssueQuestion 4909 of 112
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Detailed Solution & Explanation

Any company, public or private, intending to raise its subscribed share capital by way of issue of further shares is governed by the provisions of Section 62(1)(a) of the Companies Act, 2013. Whenever a company decides to issue new shares to the outsiders, dilution occurs in respect of the voting rights as well as the earning per share of the existing shareholders. In order to preserve the rights & the position of the existing shareholders, Companies Act, 2013 provides for the offer of Right Shares through a letter of offer to the shareholders in proportion to their existing shareholding. The existing shareholders are given an option to subscribe these shares, if they like, at the first instance. The shareholders are also given the right to renounce this right wholly or partially in favour of some other person provided the right to renounce is not prohibited by articles of the company. Thus, right issue is a pre- emptive right that is given to an existing shareholder in preference to an outsider. When the right issue offer is availed by an existing shareholder the value of right is determined as given below:- Value of Right = Cum-right value of the share Ex-right value of the share

About This Chapter: Partnership & Companies

Paper

Paper 1: Accounting

Weightage

15-20%

Key Topics

Admission, Retirement, Death, Shares, Debentures

This chapter covers Admission, Retirement, Death, Shares, Debentures and is part of Paper 1: Accounting in the CA Foundation exam.

View Official ICAI Syllabus

Exam Strategy Tip

This topic carries 15-20% weightage. Focus on understanding core concepts rather than memorizing.

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More Questions from Company Accounts

Reserve Capital

Cumulative preference shares

Minimum subscription

Reserve Capital and Capital Reserve carry the same meaning.

As per Table F, the Minimum rate of interest that can be charged on calls- in-Arrear and that can be allowed on calls-in-advance are 10% p.m. and 12% p.m. respectively.

Re-issue of forfeited shares is allotment of shares but not a sale. [May 2018, 2 Marks]

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