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All questions of Unit 4: Accounting for Bonus Issue and Right Issue for CA Foundation Exam
A company cannot issue fully paid-up bonus shares to its members out of:- a)Securities Premium
- b)Capital Redemption Reserve
- c)Revaluation Reserve
- d)All of the above
Correct answer is option 'C'. Can you explain this answer?
A company cannot issue fully paid-up bonus shares to its members out of:
a)
Securities Premium
b)
Capital Redemption Reserve
c)
Revaluation Reserve
d)
All of the above
|
Madhavan Malik answered |
Understanding Bonus Shares
Bonus shares are additional shares given to existing shareholders without any additional cost, based on the number of shares that a shareholder already owns. Companies can issue these shares from certain reserves.
Sources for Issuing Bonus Shares
A company can issue fully paid-up bonus shares from:
Limitations of Revaluation Reserve
However, the Revaluation Reserve cannot be used to issue fully paid-up bonus shares, and here's why:
Conclusion
In summary, while bonus shares can be issued from the Securities Premium and Capital Redemption Reserve, the Revaluation Reserve is not a permissible source due to its nature as a non-realized gain. This helps protect the financial integrity of the company and ensures that shareholders receive genuine value.
Bonus shares are additional shares given to existing shareholders without any additional cost, based on the number of shares that a shareholder already owns. Companies can issue these shares from certain reserves.
Sources for Issuing Bonus Shares
A company can issue fully paid-up bonus shares from:
- Securities Premium: This refers to the amount received by a company over and above the face value of its shares. It can be used to issue bonus shares.
- Capital Redemption Reserve: This reserve is created specifically for the purpose of redeeming preference shares. Funds from this reserve can also be used to issue bonus shares.
Limitations of Revaluation Reserve
However, the Revaluation Reserve cannot be used to issue fully paid-up bonus shares, and here's why:
- Nature of Revaluation Reserve: This reserve arises from the increase in the value of a company's assets. It is not a realized profit but a book entry reflecting the appreciation of assets.
- Legal Provisions: According to the Companies Act, the use of Revaluation Reserve for issuing bonus shares is prohibited as it does not represent accumulated profits. This ensures that bonus shares are issued from real profits, maintaining shareholder equity.
Conclusion
In summary, while bonus shares can be issued from the Securities Premium and Capital Redemption Reserve, the Revaluation Reserve is not a permissible source due to its nature as a non-realized gain. This helps protect the financial integrity of the company and ensures that shareholders receive genuine value.
Following are the extracts from the draft Balance Sheet of OMG Ltd.:
Equity shares Capital (₹10 8,00,000 each)
Securities premium 1,00,000
General reserve 2,50,000
Profit & loss account 1,50,000
A resolution was passed declaring 3 bonus shares for 5 shares held. Use minimum securities premium balance. To issue bonus shares Securities Premium A/c will be debited by- a)₹ 1,50,000
- b)₹ 90,000
- c)₹ 1,20,000
- d)₹ 80,000
Correct answer is option 'D'. Can you explain this answer?
Following are the extracts from the draft Balance Sheet of OMG Ltd.:
Equity shares Capital (₹10 8,00,000 each)
Securities premium 1,00,000
General reserve 2,50,000
Profit & loss account 1,50,000
A resolution was passed declaring 3 bonus shares for 5 shares held. Use minimum securities premium balance. To issue bonus shares Securities Premium A/c will be debited by
Equity shares Capital (₹10 8,00,000 each)
Securities premium 1,00,000
General reserve 2,50,000
Profit & loss account 1,50,000
A resolution was passed declaring 3 bonus shares for 5 shares held. Use minimum securities premium balance. To issue bonus shares Securities Premium A/c will be debited by
a)
₹ 1,50,000
b)
₹ 90,000
c)
₹ 1,20,000
d)
₹ 80,000
|
|
Dhruba Choudhary answered |
Calculation:
Step 1: Determine the number of bonus shares to be issued.
- The resolution declared 3 bonus shares for every 5 shares held.
- Let's assume the total number of shares held is 5x.
- Therefore, the number of bonus shares to be issued = 3/5 * 5x = 3x.
Step 2: Calculate the total amount required for issuing bonus shares.
- Since the bonus shares are issued from the securities premium account, the total amount required will be 3x * Rs.10 = Rs.30x.
Step 3: Determine the securities premium balance to be debited.
- The securities premium balance available is Rs.1,00,000.
- Therefore, the securities premium balance to be debited = minimum of (Rs.1,00,000, Rs.30x).
Step 4: Calculate the value of x.
- Since the securities premium balance to be debited is the minimum of Rs.1,00,000 and Rs.30x, we need to find the value of x such that Rs.30x is less than Rs.1,00,000.
- Solving for x: Rs.30x < />
- x < rs.1,00,000="" />
- x < />
Step 5: Calculate the securities premium balance to be debited.
- When x = 3333, Rs.30x = Rs.1,00,000.
- Therefore, the securities premium balance to be debited = Rs.1,00,000.
Therefore, the correct answer is option 'D' - Rs.80,000.
Step 1: Determine the number of bonus shares to be issued.
- The resolution declared 3 bonus shares for every 5 shares held.
- Let's assume the total number of shares held is 5x.
- Therefore, the number of bonus shares to be issued = 3/5 * 5x = 3x.
Step 2: Calculate the total amount required for issuing bonus shares.
- Since the bonus shares are issued from the securities premium account, the total amount required will be 3x * Rs.10 = Rs.30x.
Step 3: Determine the securities premium balance to be debited.
- The securities premium balance available is Rs.1,00,000.
- Therefore, the securities premium balance to be debited = minimum of (Rs.1,00,000, Rs.30x).
Step 4: Calculate the value of x.
- Since the securities premium balance to be debited is the minimum of Rs.1,00,000 and Rs.30x, we need to find the value of x such that Rs.30x is less than Rs.1,00,000.
- Solving for x: Rs.30x < />
- x < rs.1,00,000="" />
- x < />
Step 5: Calculate the securities premium balance to be debited.
- When x = 3333, Rs.30x = Rs.1,00,000.
- Therefore, the securities premium balance to be debited = Rs.1,00,000.
Therefore, the correct answer is option 'D' - Rs.80,000.
For which one or more of the following reasons could a balance in the securities premium be applied?
(a) To issue bonus shares.
(b) For distribution to shareholders as dividend.
(c) To write down the value of assets, particularly when they are impaired.
(d) To write off expenses of and commission on issuing the same shares
Select the correct answer from the options given below- a)(c) & (d)
- b)(a) & (b)
- c)(b) & (c)
- d)(a) & (d)
Correct answer is option 'D'. Can you explain this answer?
For which one or more of the following reasons could a balance in the securities premium be applied?
(a) To issue bonus shares.
(b) For distribution to shareholders as dividend.
(c) To write down the value of assets, particularly when they are impaired.
(d) To write off expenses of and commission on issuing the same shares
Select the correct answer from the options given below
(a) To issue bonus shares.
(b) For distribution to shareholders as dividend.
(c) To write down the value of assets, particularly when they are impaired.
(d) To write off expenses of and commission on issuing the same shares
Select the correct answer from the options given below
a)
(c) & (d)
b)
(a) & (b)
c)
(b) & (c)
d)
(a) & (d)
|
Aman Chaudhary answered |
Reasons for applying a balance in securities premium:
Issuing bonus shares:
One reason for applying a balance in the securities premium is to issue bonus shares. This allows a company to reward its shareholders by issuing additional shares without requiring them to make any additional payment.
Writing off expenses and commissions:
Another reason for applying a balance in the securities premium is to write off expenses and commission on issuing the same shares. This helps the company offset the costs associated with issuing shares, ensuring that these expenses do not impact the company's financial performance.
Explanation of the correct answer:
In this case, option 'D' is the correct answer because it includes both of the above reasons for applying a balance in the securities premium. By issuing bonus shares and writing off expenses and commissions, a company can effectively utilize the securities premium balance for the benefit of its shareholders and financial stability.
Issuing bonus shares:
One reason for applying a balance in the securities premium is to issue bonus shares. This allows a company to reward its shareholders by issuing additional shares without requiring them to make any additional payment.
Writing off expenses and commissions:
Another reason for applying a balance in the securities premium is to write off expenses and commission on issuing the same shares. This helps the company offset the costs associated with issuing shares, ensuring that these expenses do not impact the company's financial performance.
Explanation of the correct answer:
In this case, option 'D' is the correct answer because it includes both of the above reasons for applying a balance in the securities premium. By issuing bonus shares and writing off expenses and commissions, a company can effectively utilize the securities premium balance for the benefit of its shareholders and financial stability.
Which of the following statement is true if the company issues bonus shares?- a)Bonus share is an income.
- b)Total market value comes down after the bonus issue.
- c)Paid-up share capital increases with the issue of bonus shares.
- d)Fund flow is affected adversely due to bonus issues.
Correct answer is option 'C'. Can you explain this answer?
Which of the following statement is true if the company issues bonus shares?
a)
Bonus share is an income.
b)
Total market value comes down after the bonus issue.
c)
Paid-up share capital increases with the issue of bonus shares.
d)
Fund flow is affected adversely due to bonus issues.
|
Vandana Kulkarni answered |
Increased Paid-up Share Capital:
Bonus shares are issued to existing shareholders in proportion to their current shareholding. As a result, the company's paid-up share capital increases without any cash outflow. This means that the company's equity base expands, but there is no corresponding increase in its liabilities.
Impact on Total Market Value:
When a company issues bonus shares, the total number of outstanding shares increases. However, the value of the company remains the same as the total market capitalization is distributed over a larger number of shares. Therefore, the market price per share adjusts to reflect the bonus issue, but the overall market value does not change.
Effect on Fund Flow:
Issuing bonus shares does not impact the company's fund flow adversely. Since no cash is being distributed to shareholders, there is no outflow of funds from the company. In fact, bonus shares are often seen as a way to reward shareholders without affecting the company's cash reserves.
In conclusion, the statement that paid-up share capital increases with the issue of bonus shares is true. This is because bonus shares are issued out of the company's reserves and result in an increase in the company's equity base without requiring any cash outflow.
Bonus shares are issued to existing shareholders in proportion to their current shareholding. As a result, the company's paid-up share capital increases without any cash outflow. This means that the company's equity base expands, but there is no corresponding increase in its liabilities.
Impact on Total Market Value:
When a company issues bonus shares, the total number of outstanding shares increases. However, the value of the company remains the same as the total market capitalization is distributed over a larger number of shares. Therefore, the market price per share adjusts to reflect the bonus issue, but the overall market value does not change.
Effect on Fund Flow:
Issuing bonus shares does not impact the company's fund flow adversely. Since no cash is being distributed to shareholders, there is no outflow of funds from the company. In fact, bonus shares are often seen as a way to reward shareholders without affecting the company's cash reserves.
In conclusion, the statement that paid-up share capital increases with the issue of bonus shares is true. This is because bonus shares are issued out of the company's reserves and result in an increase in the company's equity base without requiring any cash outflow.
Bonus issue can be made on- a)Partly paid-up shares
- b)Fully paid-up shares.
- c)Either (A) or (B)
- d)Both (A) and (B)
Correct answer is option 'B'. Can you explain this answer?
Bonus issue can be made on
a)
Partly paid-up shares
b)
Fully paid-up shares.
c)
Either (A) or (B)
d)
Both (A) and (B)
|
Srsps answered |
Explanation:
- What is a bonus issue: A bonus issue is when a company decides to issue additional shares to existing shareholders for free, in proportion to their current holdings.
- Types of shares for bonus issue: Bonus issue can be made on either partly paid-up shares or fully paid-up shares.
- Partly paid-up shares: These are shares on which only a part of the face value has been paid by the shareholders. The company can issue bonus shares on these shares to reward the shareholders and bring their ownership to par.
- Fully paid-up shares: These are shares on which the full face value has been paid by the shareholders. Bonus issue on fully paid-up shares is a way for the company to reward the shareholders without requiring any additional payment.
- Option C and D: Option C states that bonus issue can be made on either partly paid-up shares or fully paid-up shares, while option D states that bonus issue can be made on both partly paid-up shares and fully paid-up shares. Since both options C and D are correct, the answer is option B.
An Ltd. has 20,000 Equity Shares of ₹ 10 each. The Balance of the Profit & Loss Account is ₹ 1,40,000. It has issued 6% Debentures in the past of ₹ 1,20,000.
At the annual general meeting, it was resolved that:
(i) To pay a dividend of 10% in cash. The corporate dividend tax rate is 17%.
(ii) To issue 1 bonus share for every 4 shares held after 1 month of right issue.
(iii) To give existing shareholders the right to purchase one ₹ 10 shares for every 4 shares prior to bonus issue.
(iv) To repay debentures at a premium of 596.
Balance of Profit & Loss A/c after giving effect to the above transactions will be- a)₹ 48,100
- b)₹ 54,100
- c)₹ 52,000
- d)₹ 65,100
Correct answer is option 'A'. Can you explain this answer?
An Ltd. has 20,000 Equity Shares of ₹ 10 each. The Balance of the Profit & Loss Account is ₹ 1,40,000. It has issued 6% Debentures in the past of ₹ 1,20,000.
At the annual general meeting, it was resolved that:
(i) To pay a dividend of 10% in cash. The corporate dividend tax rate is 17%.
(ii) To issue 1 bonus share for every 4 shares held after 1 month of right issue.
(iii) To give existing shareholders the right to purchase one ₹ 10 shares for every 4 shares prior to bonus issue.
(iv) To repay debentures at a premium of 596.
Balance of Profit & Loss A/c after giving effect to the above transactions will be
At the annual general meeting, it was resolved that:
(i) To pay a dividend of 10% in cash. The corporate dividend tax rate is 17%.
(ii) To issue 1 bonus share for every 4 shares held after 1 month of right issue.
(iii) To give existing shareholders the right to purchase one ₹ 10 shares for every 4 shares prior to bonus issue.
(iv) To repay debentures at a premium of 596.
Balance of Profit & Loss A/c after giving effect to the above transactions will be
a)
₹ 48,100
b)
₹ 54,100
c)
₹ 52,000
d)
₹ 65,100
|
Freedom Institute answered |
Detailed
- Calculate the total dividend payable:
- Number of equity shares = 20,000
- Dividend rate = 10%
- Dividend per share = ₹10 x 10% = ₹1
- Total dividend payable = ₹1 x 20,000 = ₹20,000
- Calculate the dividend tax:
- Dividend tax rate = 17%
- Dividend tax amount = 17% of ₹20,000 = ₹3,400
- Calculate the total bonus shares to be issued:
- Total number of equity shares after bonus issue = 20,000 + (20,000/4) = 25,000
- Number of bonus shares = 25,000 - 20,000 = 5,000
- Calculate the premium on debentures:
- Debentures to be repaid = ₹1,20,000
- Premium on debentures = 6% of ₹1,20,000 = ₹7,200
- Calculate the final balance of Profit & Loss Account:
- Initial balance of Profit & Loss Account = ₹1,40,000
- Total dividend paid = ₹20,000
- Dividend tax paid = ₹3,400
- Debentures premium paid = ₹7,200
- Final balance = ₹1,40,000 - ₹20,000 - ₹3,400 - ₹7,200 = ₹1,09,400
Therefore, the balance of the Profit & Loss Account after giving effect to the above transactions will be ₹ 1,09,400.
Following was the Balance Sheet of BCC Ltd. as of 31st December 2019:Equity Shares of ₹10 each ₹ 8,00,000 Securities Premium ₹ 2,80,000General Reserve ₹ 1,40,000Profit & Loss Account ₹ 2,40,000Sundry Creditors ₹ 1,80,000The company issued 3 bonus shares for every 4 fully paid-up shares. Securities premium account will be utilized first and then General Reserve. To issue bonus shares Profit & Loss A/c will be debited by- a)₹ 2,40,000
- b)₹ 1,80,000
- c)₹ 2,00,000
- d)₹ 2,20,000
Correct answer is option 'B'. Can you explain this answer?
Following was the Balance Sheet of BCC Ltd. as of 31st December 2019:Equity Shares of ₹10 each ₹ 8,00,000 Securities Premium ₹ 2,80,000General Reserve ₹ 1,40,000Profit & Loss Account ₹ 2,40,000Sundry Creditors ₹ 1,80,000The company issued 3 bonus shares for every 4 fully paid-up shares. Securities premium account will be utilized first and then General Reserve. To issue bonus shares Profit & Loss A/c will be debited by
a)
₹ 2,40,000
b)
₹ 1,80,000
c)
₹ 2,00,000
d)
₹ 2,20,000
|
|
Dhruba Choudhary answered |
Calculation of Bonus Shares Issued:
- Total Equity Shares before issuing bonus shares = 8,00,000 / 10 = 80,000 shares
- Bonus shares to be issued = 3/4 * 80,000 = 60,000 shares
Utilization of Reserves:
- Securities Premium = 2,80,000
- General Reserve = 1,40,000
- Total available for bonus issue = 2,80,000 + 1,40,000 = 4,20,000
Debit to Profit & Loss Account:
- Remaining amount needed for bonus issue = 60,000 * 10 (face value of shares) = 6,00,000
- Amount to be debited to Profit & Loss Account = 6,00,000 - 4,20,000 = 1,80,000
Therefore, the correct answer is option 'B' - 1,80,000.
- Total Equity Shares before issuing bonus shares = 8,00,000 / 10 = 80,000 shares
- Bonus shares to be issued = 3/4 * 80,000 = 60,000 shares
Utilization of Reserves:
- Securities Premium = 2,80,000
- General Reserve = 1,40,000
- Total available for bonus issue = 2,80,000 + 1,40,000 = 4,20,000
Debit to Profit & Loss Account:
- Remaining amount needed for bonus issue = 60,000 * 10 (face value of shares) = 6,00,000
- Amount to be debited to Profit & Loss Account = 6,00,000 - 4,20,000 = 1,80,000
Therefore, the correct answer is option 'B' - 1,80,000.
Value of the right =?- a)Market value plus the average price of the share
- b)Market value less average price of the share
- c)Market value multiplied by ad. adjustment factor
- d)Market value less average price of the share multiplied by an adjustment factor
Correct answer is option 'B'. Can you explain this answer?
Value of the right =?
a)
Market value plus the average price of the share
b)
Market value less average price of the share
c)
Market value multiplied by ad. adjustment factor
d)
Market value less average price of the share multiplied by an adjustment factor
|
|
Aditi Joshi answered |
Calculation of the Value of the Right
The correct answer is option 'B', which states that the value of the right is determined by subtracting the average price of the share from the market value. Let's break down the calculation in detail:
Market Value:
- The market value refers to the current price at which a share is trading in the market. This is the price at which investors are willing to buy or sell the stock.
Average Price of the Share:
- The average price of the share is the mean price at which the stock has been trading over a specific period. It is calculated by summing up all the prices and dividing by the number of observations.
Calculation:
- To calculate the value of the right, you subtract the average price of the share from the market value. This gives you the difference between the current trading price and the average price.
Significance:
- This calculation helps investors understand the value of the rights they hold in relation to the current market price. It provides insight into whether the rights are trading at a premium or discount compared to the average price.
Therefore, the correct way to determine the value of the right is by subtracting the average price of the share from the market value.
The correct answer is option 'B', which states that the value of the right is determined by subtracting the average price of the share from the market value. Let's break down the calculation in detail:
Market Value:
- The market value refers to the current price at which a share is trading in the market. This is the price at which investors are willing to buy or sell the stock.
Average Price of the Share:
- The average price of the share is the mean price at which the stock has been trading over a specific period. It is calculated by summing up all the prices and dividing by the number of observations.
Calculation:
- To calculate the value of the right, you subtract the average price of the share from the market value. This gives you the difference between the current trading price and the average price.
Significance:
- This calculation helps investors understand the value of the rights they hold in relation to the current market price. It provides insight into whether the rights are trading at a premium or discount compared to the average price.
Therefore, the correct way to determine the value of the right is by subtracting the average price of the share from the market value.
A company has decided to increase its existing share capital by making rights issues to the existing shareholders in the proportion of 1 new share for every 2 old shares held. You are required to calculate the value of the right if the market value of the share at the time of announcement of the right issue is ₹ 576. The company has decided to give one share of ₹ 100 each at a premium of ₹ 188 each.- a)₹ 348
- b)₹ 174
- c)₹ 96
- d)₹ 82
Correct answer is option 'C'. Can you explain this answer?
A company has decided to increase its existing share capital by making rights issues to the existing shareholders in the proportion of 1 new share for every 2 old shares held. You are required to calculate the value of the right if the market value of the share at the time of announcement of the right issue is ₹ 576. The company has decided to give one share of ₹ 100 each at a premium of ₹ 188 each.
a)
₹ 348
b)
₹ 174
c)
₹ 96
d)
₹ 82
|
|
Dhruba Choudhary answered |
Calculation of the value of the right:
1. Market value of the share: $576
2. Face value of the share: $100
3. Premium on the share: $188
4. Total value of the new share: $100 + $188 = $288
Calculation of the value of the right:
- When a rights issue is made, the existing shareholders are given the option to buy new shares at a discounted price. In this case, the company is offering 1 new share for every 2 old shares held.
- In order to calculate the value of the right, we need to find out how much a shareholder would have to pay to purchase a new share through the rights issue.
- Since the market value of the share is $576 and the total value of the new share is $288, the discounted price of the new share through the rights issue would be $576 - $288 = $288.
- Therefore, the value of the right is the discounted price of the new share, which is $288.
Therefore, the value of the right is $288, which is option (c) $96.
1. Market value of the share: $576
2. Face value of the share: $100
3. Premium on the share: $188
4. Total value of the new share: $100 + $188 = $288
Calculation of the value of the right:
- When a rights issue is made, the existing shareholders are given the option to buy new shares at a discounted price. In this case, the company is offering 1 new share for every 2 old shares held.
- In order to calculate the value of the right, we need to find out how much a shareholder would have to pay to purchase a new share through the rights issue.
- Since the market value of the share is $576 and the total value of the new share is $288, the discounted price of the new share through the rights issue would be $576 - $288 = $288.
- Therefore, the value of the right is the discounted price of the new share, which is $288.
Therefore, the value of the right is $288, which is option (c) $96.
Which of the following is a correct journal entry for the issue of bonus shares?- a)Debit the equity share capital account and credit the securities premium account.
- b)Debit the bonus to shareholders account and credit the general reserve account
- c)Debit the general reserve account and credit the equity share capital account.
- d)Debit the capital reserve account and credit the equity share capital account.
Correct answer is option 'C'. Can you explain this answer?
Which of the following is a correct journal entry for the issue of bonus shares?
a)
Debit the equity share capital account and credit the securities premium account.
b)
Debit the bonus to shareholders account and credit the general reserve account
c)
Debit the general reserve account and credit the equity share capital account.
d)
Debit the capital reserve account and credit the equity share capital account.
|
|
Freedom Institute answered |
Correct Journal Entry for Issue of Bonus Shares:
- Debit the general reserve account: When bonus shares are issued, the company utilizes its general reserve to fund the issuance of these shares.
- Credit the equity share capital account: The equity share capital account is credited to reflect the increase in the number of shares issued due to the bonus shares.
Which of the following condition of Section 63 is required to be complied with by the company before making the bonus issue?- a)Bonus issue is authorized by its articles
- b)Company has not defaulted in payment of interest or principal in respect of fixed deposits or debt securities issued by it.
- c)Company has not defaulted in payment of statutory dues of the employees like PF contribution, gratuity, and bonus.
- d)All of the above
Correct answer is option 'D'. Can you explain this answer?
Which of the following condition of Section 63 is required to be complied with by the company before making the bonus issue?
a)
Bonus issue is authorized by its articles
b)
Company has not defaulted in payment of interest or principal in respect of fixed deposits or debt securities issued by it.
c)
Company has not defaulted in payment of statutory dues of the employees like PF contribution, gratuity, and bonus.
d)
All of the above
|
|
Srsps answered |
Explanation:
- Bonus issue is authorized by its articles: This condition is required to be complied with by the company before making the bonus issue. The company must have the authorization in its articles of association to issue bonus shares.
- Company has not defaulted in payment of interest or principal in respect of fixed deposits or debt securities issued by it: This condition ensures that the company is financially stable and able to meet its obligations towards fixed deposit holders and debt security holders.
- Company has not defaulted in payment of statutory dues of the employees like PF contribution, gratuity, and bonus: This condition ensures that the company is compliant with all statutory requirements related to employee benefits and contributions.
Therefore, all of the above conditions (A, B, and C) need to be complied with by the company before making the bonus issue.
Bonus issue must be authorized- a)By the board of directors
- b)Article of association of the company
- c)Shareholders by ordinary resolution
- d)All of the above
Correct answer is option 'D'. Can you explain this answer?
Bonus issue must be authorized
a)
By the board of directors
b)
Article of association of the company
c)
Shareholders by ordinary resolution
d)
All of the above
|
|
Freedom Institute answered |
Authorization of Bonus Issue:
- Authority: Bonus issue must be authorized by the board of directors.
- Article of Association: The bonus issue must also comply with the article of association of the company.
- Shareholder Approval: Shareholders must approve the bonus issue by an ordinary resolution.
- All of the Above: Therefore, the bonus issue must be authorized by the board of directors, comply with the article of association, and approved by shareholders through an ordinary resolution.
It is essential for the company to follow all these steps to ensure the bonus issue is legally authorized and in compliance with the company's regulations and requirements. By obtaining approval from all these bodies, the company can proceed with the bonus issue confidently and transparently.
Which of the following can be utilized for the issue of bonus shares? - Balance of profits & loss account
- Capital Reserve
- Dividend Equalization Fund
- Development Rebate Reserve
- Profit Prior to Incorporation
Select the correct answer from the options given below- a)1, 3, and 5 only
- b)2 and 4 only
- c)1 and 3 only
- d)1, 2, 3, and 5 only
Correct answer is option 'C'. Can you explain this answer?
Which of the following can be utilized for the issue of bonus shares?
- Balance of profits & loss account
- Capital Reserve
- Dividend Equalization Fund
- Development Rebate Reserve
- Profit Prior to Incorporation
Select the correct answer from the options given below
a)
1, 3, and 5 only
b)
2 and 4 only
c)
1 and 3 only
d)
1, 2, 3, and 5 only
|
|
Srsps answered |
Utilization of Different Reserves for Issuing Bonus Shares
- Balance of profits & loss account: This can be used for the issue of bonus shares as it represents the accumulated profits of the company.
- Capital Reserve: Capital reserves are created out of the profits which are not distributable as dividends. They can be utilized for issuing bonus shares.
- Dividend Equalization Fund: This fund is created to equalize dividends, and it can also be utilized for issuing bonus shares.
- Development Rebate Reserve: This reserve is created out of development rebates, and it can be used for issuing bonus shares.
- Profit Prior to Incorporation: Profits earned before the company was incorporated can also be utilized for issuing bonus shares.
Correct Answer
Based on the options given, the correct answer is 1 and 3 only (Option C).
The notice relating to offer for the right issue shall be dispatched through registered post or speed post or through electronic mode to all the existing shareholders at least before the opening of the issue.- a)3 days
- b)5 days
- c)7 days
- d)10 days
Correct answer is option 'A'. Can you explain this answer?
The notice relating to offer for the right issue shall be dispatched through registered post or speed post or through electronic mode to all the existing shareholders at least before the opening of the issue.
a)
3 days
b)
5 days
c)
7 days
d)
10 days
|
|
Freedom Institute answered |
Explanation:
- Notice Dispatch: The notice for the right issue must be dispatched to all existing shareholders before the opening of the issue.
- Mode of Dispatch: The notice can be sent through registered post, speed post, or electronic mode.
- Time Frame: The notice should be dispatched at least a few days before the opening of the issue to give shareholders enough time to consider the offer.
Answer:
- Option A (3 days): This option is not feasible as sending the notice just 3 days before the opening of the issue may not provide enough time for shareholders to make informed decisions.
- Option B (5 days): This option is also not ideal as it may not give shareholders sufficient time to carefully evaluate the offer.
- Option C (7 days): This option is the most appropriate as sending the notice at least 7 days before the opening of the issue allows shareholders a reasonable amount of time to review the offer and make decisions.
- Option D (10 days): While sending the notice 10 days before the opening of the issue would provide shareholders with more time, it may not be necessary and could delay the process unnecessarily.
Therefore, based on the requirement of dispatching the notice before the opening of the issue and providing shareholders with ample time to consider the offer, the correct answer is Option C (7 days).
Notice relating to an offering for right issue shall be dispatched through- a)Registered Post
- b)Speed Post
- c)Electronic Mode
- d)Any of the above
Correct answer is option 'D'. Can you explain this answer?
Notice relating to an offering for right issue shall be dispatched through
a)
Registered Post
b)
Speed Post
c)
Electronic Mode
d)
Any of the above
|
|
Srsps answered |
Explanation:
- Notice Dispatch: The notice relating to an offering for right issue can be dispatched through registered post, speed post, or electronic mode.
- Registered Post: This is a traditional method of sending important documents through the postal service. It provides proof of posting and delivery.
- Speed Post: This is a faster delivery option provided by the postal department for sending documents securely and quickly.
- Electronic Mode: This refers to sending notices through email or other electronic means, which is quick and cost-effective.
- Any of the above: The notice can be dispatched using any of the above methods, depending on the preference and convenience of the company issuing the right issue.
Which of the following can be used for issuing bonus shares?- a)Capital Redemption Reserve
- b)Securities Premium Account
- c)Profit and Loss Account
- d)Any of the above
Correct answer is option 'D'. Can you explain this answer?
Which of the following can be used for issuing bonus shares?
a)
Capital Redemption Reserve
b)
Securities Premium Account
c)
Profit and Loss Account
d)
Any of the above
|
|
Srsps answered |
Issuing Bonus Shares
- Capital Redemption Reserve: Bonus shares can be issued by utilizing the Capital Redemption Reserve, which is created by transferring a portion of profits to this reserve when redeeming preference shares.
- Securities Premium Account: Bonus shares can also be issued by utilizing the Securities Premium Account, which is created when shares are issued at a premium above their face value.
- Profit and Loss Account: In some cases, bonus shares can be issued by utilizing the profits accumulated in the Profit and Loss Account. However, this is less common compared to using the Capital Redemption Reserve or Securities Premium Account.
Conclusion
- Any of the above: In conclusion, bonus shares can be issued using any of the above methods, depending on the company's specific circumstances and financial position.
By following these guidelines, you can effectively issue bonus shares using the appropriate reserves or accounts.
Right shares can be offered by the companies to persons other than existing shareholders or employees by passing a:- a)Special Resolution
- b)Extra-ordinary Resolution
- c)Ordinary Resolution
- d)Board Resolution
Correct answer is option 'A'. Can you explain this answer?
Right shares can be offered by the companies to persons other than existing shareholders or employees by passing a:
a)
Special Resolution
b)
Extra-ordinary Resolution
c)
Ordinary Resolution
d)
Board Resolution
|
|
Freedom Institute answered |
Special Resolution:
- The right shares can be offered to persons other than existing shareholders or employees by passing a Special Resolution.
- A Special Resolution requires the approval of at least 75% of the shareholders present and voting at a general meeting.
- This resolution is needed to authorize the issuance of new shares to individuals who are not currently shareholders or employees of the company.
Which of the following statement is false?- a)The bonus shares shall not be issued in lieu of dividends.
- b)The company which has once announced the decision of its Board recommending a bonus issue can withdraw the same.
- c)In case of bonus issue there is no cash flow.
- d)Issue of bonus shares does not affect the market value of the company.
Correct answer is option 'B'. Can you explain this answer?
Which of the following statement is false?
a)
The bonus shares shall not be issued in lieu of dividends.
b)
The company which has once announced the decision of its Board recommending a bonus issue can withdraw the same.
c)
In case of bonus issue there is no cash flow.
d)
Issue of bonus shares does not affect the market value of the company.
|
|
Freedom Institute answered |
Explanation:
- A: The bonus shares shall not be issued in lieu of dividends. - This statement is true. Bonus shares are issued to existing shareholders as a reward and do not replace dividends.
- B: The company which has once announced the decision of its Board recommending a bonus issue can withdraw the same. - This statement is false. Once a company announces a bonus issue, it cannot withdraw the decision.
- C: In case of bonus issue there is no cash flow. - This statement is true. Bonus shares are issued without any cash outflow as they are issued to existing shareholders.
- D: Issue of bonus shares does not affect the market value of the company. - This statement is false. The issue of bonus shares can impact the market value of the company as it increases the number of shares outstanding.
Therefore, the false statement among the given options is B: The company which has once announced the decision of its Board recommending a bonus issue can withdraw the same.
If a company makes bonus issue at 2:3 then it means- a)For every two shares three bonus shares will be allotted
- b)For every three shares two bonus shares will be allotted
- c)For every Eve shares three bonus shares will be allotted
- d)For every five shares two bonus shares will be allotted
Correct answer is option 'B'. Can you explain this answer?
If a company makes bonus issue at 2:3 then it means
a)
For every two shares three bonus shares will be allotted
b)
For every three shares two bonus shares will be allotted
c)
For every Eve shares three bonus shares will be allotted
d)
For every five shares two bonus shares will be allotted
|
|
Srsps answered |
Explanation:
- Company's Bonus Issue: When a company makes a bonus issue at 2:3, it means that for every 2 existing shares, 3 bonus shares will be allotted to the shareholders.
- Calculation: To calculate the number of bonus shares a shareholder will receive, divide the total number of existing shares by the denominator of the ratio (in this case, 3) and then multiply by the numerator of the ratio (in this case, 2).
- Example: If a shareholder holds 100 existing shares, they will receive (100/3) * 2 = 66.67 bonus shares, which will be rounded down to the nearest whole number, giving a total of 66 bonus shares.
- Benefit to Shareholders: Bonus issues are a way for companies to reward their shareholders without impacting the company's cash reserves. Shareholders benefit from receiving additional shares, which can increase their ownership stake in the company.
Chapter doubts & questions for Unit 4: Accounting for Bonus Issue and Right Issue - Accounting for CA Foundation 2025 is part of CA Foundation exam preparation. The chapters have been prepared according to the CA Foundation exam syllabus. The Chapter doubts & questions, notes, tests & MCQs are made for CA Foundation 2025 Exam. Find important definitions, questions, notes, meanings, examples, exercises, MCQs and online tests here.
Chapter doubts & questions of Unit 4: Accounting for Bonus Issue and Right Issue - Accounting for CA Foundation in English & Hindi are available as part of CA Foundation exam.
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