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Title : Bonus Shares
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Bonus Shares

 Bonus Shares

Shares issued free of cost to the existing shareholders by way of capitalisation of profits and reserves are called “Bonus Shares" The issue of bonus shares implies payment of dividend in form of shares instead of cash. These new shares are only to the existing Equity shareholders in proportion to their existing shareholdings. This increases the issued capital of the company without changing the assets of the company as it decreases the Reserves & Surplus of the company.

 

Guidelines by SEBI for issue of Bonus Shares

1.      The bonus is made out of free reserves built out of genuine profits or share premium.

2.      Reserves created by revaluation of assets are not capitalized.

3.      The bonus issue is not made unless the partly paid-up equity shares (if any) are made fully paid-up.

4.      There should be provision in articles for issue of bonus shares.

Reserves that can be used for issue of Bonus shares

1.      Profit and Loss A/c

2.      General Reserve

3.      Dividend Equalization Reserve

4.      Profits on sale of Fixed Assets

5.      Net Balance in Debenture Redemption Reserve

6.      Capital Redemption Reserve A/c

7.      Securities Premium

Note: Capital Redemption Reserve A/c & Securities Premium can be applied only for issuing fully paid up bonus shares and not for making partly Paid-up shares as fully Paid-up.

Accounting Treatment:

A.      If the bonus is utilised for making partly paid-up shares as fully paid-up

1. Profit & Loss A/c                             Dr.

    General Reserve A/c                        Dr.

   Capital Reserve A/c                         Dr.

           To Bonus to Shareholder’s A/c

2.  Share Final Call A/c                        Dr.

          To Share Capital A/c

3.  Bonus to Shareholder’s A/c           Dr.

           To Share Final Call A/c

B.      For issuing fully paid-up Bonus Shares

1.      Profit & Loss A/c                           Dr.

      General Reserve A/c                      Dr.

      Capital Reserve A/c                       Dr.

      Securities Premium A/c                 Dr.

      Capital Redemption Reserve A/c  Dr.

             To Bonus to Shareholder’s A/c

2.      Bonus to Shareholder’s A/c          Dr.

       To Share Capital A/c

       To Securities Premium A/c (if any)

 

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