What do you mean by issue of Bonus shares?
For any discrepancies in this question, email contact@cadada.in
Company AccountsQ-1 | Bonus Issue and Right IssueQuestion 5241 of 112
All Questions Ad
Detailed Solution & Explanation
Bonus issue is also known as capitalisation of profits/reserves. It is the free distribution of
shares to the existing shareholders. Only free reserve & profits, share premium received in
cash & Capital Redemption Reserve can be utilised for issuing fully paid Bonus Shares.
Capital reserve realised in cash can also be utilised for bonus issue. However, Reval- uation
reserve cannot be utilized, since it is not realised in cash.
Further, once the decision to make bonus issue is made, it cannot be withdrawn.
As per section 63(1) of Companies Act, 2013, company may issue fully paid up bonus shares
to its members, out of:
(i) Its free reserves (as per section 2 (43) free reserves means reserves available for
distribution as dividend as per latest audited balance-sheet.)
(ii) The securities premium account [sec. 52(2)] or
(iii) The capital redemption reserve account [sec. 55(4)]
(iv) Revaluation reserve cannot be used.
As per section 63(2) Bonus issue shall be allowed if:
(a) It is authorised by articles,
(b) Recommended by board & authorised in general meeting,
(c) The company has not defaulted in payment of interest or principal of fixed deposit
or debt securities, payment of statutory dues of employees like PF, Gratuity, Bonus
etc.
(d) Partly paid-up shares, if any, are made fully paid up, before bonus issue.
(e) The company shall comply with other conditions as may be prescribed.
As per Section 63(3) Bonus issue shall not be in lieu of dividend.
As per Article 39 of table 'F' under schedule I a company can resolve to use free reserves &
surplus for:
- Converting partly paid share into fully paid share by bonus or
- Issuing fully paid bonus shares
- To members who would have been entitled thereto, if distributed by way of
dividend and in the same proportions.
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 SyllabusExam Strategy Tip
This topic carries 15-20% weightage. Focus on understanding core concepts rather than memorizing.
Related Comparison Tables
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]
Ready to Master Company Accounts?
Practice all 112 questions with instant feedback, earn XP, track your streaks, and ace your CA Foundation exam.
Start Practicing — It's Free