bonus and right shares

Bonus shares:

Shares issued by company free off, it means without consideration to existing shareholders. It is a capitalization of free reserves.

Free reserve means not for specific purpose, profit available for dividend, like profit and loss account, general reserve etc. it excludes unrealized gain like revaluation reserves.

There are two types of bonus shares:

Conversion of partly paid up shares to fully paid up

Issue new fully paid up bonus shares.

Conditions for issue of bonus shares

Authorized by article of association

Resolution in general meeting with recommendation of board

Not default in payment of interest and deposit or statutory dues,

First issue bonus element to partly paid up shares

Journal entries:

Fully paid up bonus shares issued

Profit and loss account dr.

General reserve account dr.

Capital redemption reserve account dr.

Security premium account dr.

To bonus to share holder account

Bonus to share holder account Dr.

To equity share capital account

 

 

Partly paid up shares converted in to fully paid up shares by way of bonus.

Profit and loss account dr.

General reserve account dr.

To bonus to share holder account

Equity share final call account dr.

To equity share capital account

Bonus to share holder account Dr.

To  equity share final call account

It means security premium and CRR  can be used only for fully paid up bonus shares only.

 

Right issue:

Shares issued to existing share holders with consideration is known as right issue.

It may be at lower than market value.

Exception to right shares

1 ESOP- employee stock option plan

2 conversion of loan or debentures to shares.

3 issued with cash or other than cash consideration with the compliance of certain conditions

4 government securities converted in to shares.

Value of share = cum right value per share – ex right value per share

ex right value per share = cum right value of existing + right issue price/existing no of share + right no of shares

 

 

 

 

 

Leave a Comment

Your email address will not be published. Required fields are marked *

error: Please do not copy :)
Scroll to Top