Pdf bonus shares accounting

From accounting point of view the share capital of the company can be classified. Introduction, forfeiture of shares, reissue of shares, issue of bonus shares, rights issue, share split, buy back of shares, redemption of preference shares, debentures. Accounting from an accounting perspective, a bonus issue is a simple reclassification of reserves which causes an increase in the share capital of the company on the one hand and an equal decrease in other reserves. This chapter deals with the accounting for share capital of companies. A bonus issue, also known as a scrip issue or a capitalization issue, is an offer of free additional shares to existing shareholders. Bonus share issued by the company to the shareholder will not be accounted for in the books of investor no journal entry will be post. Accounting for bonus shares issue accountingsimplified. Issue of ordinary shares is accounted for by allocating the proceeds between the following accounts. Ordinary share capital represents equity of a company and therefore its issuance is recorded as part of the equity reserves in the balance sheet. Being utilization of reserves for bonus issue of one share for every three share held 30,000 90,000 2,40,000 2,40,000 6,00,000 30. A bonus share is a free share of stock given to current shareholders in a company, based upon the number of shares that the shareholder already owns. Bonus shares can be issued only if articles of association permit such an issue. Operating procedures manual requires that for the purpose of accounting for bonus issue.

Introduction capitalisation of profits refers to the process of converting profits or reserves into paid up capital. Solution journal entries in the books of bharat ltd. Bonus shares should not be issued out of revaluation reserves. A shareholder having shares would therefore receive 1500 bonus shares x 3. Since it is a free of cost, only we have to show increased quantity of share due to which it reduced per unit cost of investment. To equity share capital ac being bonus share issued 6,00,000 6,00,000 extract of balance sheet after bonus issue particulars notes no. Bonus shares are the shares allotted to existing equity shareholders without any consideration being received from them, in cash or in kind. Following journal entries are required to account for a bonus issue. Bonus shares are the shares that are allotted by a company to existing equity shareholders without any. After reading this article you will learn about bonus shares.

Accounting for bonus issue learning objectives after studying this chapter, you will be able to. Sometimes a company cannot pay dividend in cash due to shortage of liquid funds, viz. Pdf accounting for bonus issue learning objectives mahen. Issue of right shares and bonus shares accounting entries. Financial accounting pdf notes, syllabus, books bba, bcom 2020. Ordinary shares are also known as common stock and equity shares. Section 81 of the companies act requires that a public limited company, whenever it proposes to increase its subscribed capital after the expiry of two years from the date of its incorporation or after the expiry of one year from the date of allotment of shares in that company, made for the first time after. Section 81 of the companies act requires that a public limited company. Financial accounting pdf notes, syllabus 2020 bba, bcom. Understand the provisions relating to issue of bonus shares. They are issued to capitalize profits of the company.