46338bosinter-p1-cp6.pdf - CHAPTER 6 ACCOUNTING FOR BONUS ISSUE AND RIGHT ISSUE LEARNING OUTCOMES After studying this chapter you will be able to

46338bosinter-p1-cp6.pdf - CHAPTER 6 ACCOUNTING FOR BONUS...

This preview shows page 1 - 4 out of 26 pages.

ACCOUNTING FOR BONUS ISSUE AND RIGHT ISSUE LEARNING OUTCOMES After studying this chapter, you will be able to: Understand the provisions relating to issue of bonus shares and right shares. Account for bonus shares and right issue in the books of issuing company. Understand the meaning of renunciation of right. Differentiate between Cum-right and Ex-right valuation of share. Calculate value of rights. 6 CHAPTER © The Institute of Chartered Accountants of India
Image of page 1
6.2 ACCOUNTING 1. ISSUE OF BONUS SHARES 1.1 INTRODUCTION A bonus share may be defined as issue of shares at no cost to current shareholders in a company, based upon the number of shares that the shareholder already owns. In other words, no new funds are raised with a bonus issue While the issue of bonus shares increases the total number of shares issued and owned, it does not increase the net worth of the company. Although the total number of issued shares increases, the ratio of number of shares held by each shareholder remains constant. Bonus issue is also known as ‘capitalisation of profits’. Capitalisation of profits refers to the process of converting profits or reserves into paid up capital. A company may capitalise its profits or reserves which otherwise are available for distribution as dividends among the members by issuing fully paid bonus shares to the members. If the subscribed and paid-up capital exceeds the authorised share capital as a result of bonus issue, a resolution shall be passed by the company at its general body meeting for increasing the authorised capital. A return of bonus issue along with a copy of resolution authorising the issue of bonus shares is also required to be filed with the Registrar of Companies. CHAPTER OVERVIEW BONUS SHARES Bonus issue means a issue of free additional shares to existing shareholders. A company may issue fully paid-up bonus shares to its share- holders out of— (i) its free reserves; (ii) securities premium account; or (iii) capital redemption reserve account: Bonus shares should not be issued out of revaluation reserves (i.e., reserves created by the revaluation of assets). RIGHT ISSUE Rights issue is an issue of rights to a company's existing share- holders that entitles them to buy additional shares directly from the company in proportion to their existing holdings, within a fixed time period. In a rights offering, the subscription price at which each share may be purchased is generally at a discount to the current market price. Rights are often transferable, allowing the holder to sell them in the open market. The difference between the cum-right and ex-right value of the share is the value of the right. © The Institute of Chartered Accountants of India
Image of page 2
ACCOUNTING FOR BONUS ISSUE AND RIGHT ISSUE 6.3 1.2 PROVISIONS OF THE COMPANIES ACT, 2013 Section 63 of the Companies Act, 2013 deals with the issue of bonus shares. According to Sub-section (1) of Section 63, a company may issue fully paid-up bonus shares to its members, in any manner whatsoever, out of—
Image of page 3
Image of page 4

You've reached the end of your free preview.

Want to read all 26 pages?

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Stuck? We have tutors online 24/7 who can help you get unstuck.
A+ icon
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes