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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?
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Most Upvoted Answer
A company cannot issue fully paid-up bonus shares to its members out o...
Explanation:
- Securities Premium: Companies can issue fully paid-up bonus shares to its members out of Securities Premium. Securities Premium is the amount received by a company over and above the face value of the shares issued. It can be used to issue bonus shares without affecting the capital structure of the company.
- Capital Redemption Reserve: Capital Redemption Reserve is created when a company buys back its shares. It is used to redeem preference shares or debentures. Bonus shares cannot be issued out of this reserve as it is specifically meant for the redemption of capital instruments.
- Revaluation Reserve: Revaluation Reserve is created when the assets of a company are revalued. This reserve cannot be used to issue bonus shares as it is created for the purpose of accounting for the increase in the value of assets. It cannot be distributed to shareholders as bonus shares.
- All of the above: The correct answer is "All of the above" as bonus shares cannot be issued out of any of these reserves except Securities Premium.
Therefore, a company cannot issue fully paid-up bonus shares to its members out of the Capital Redemption Reserve, Revaluation Reserve, or any other reserves except the Securities Premium.
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A company cannot issue fully paid-up bonus shares to its members out o...
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.
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A company cannot issue fully paid-up bonus shares to its members out of:a)Securities Premiumb)Capital Redemption Reservec)Revaluation Reserved)All of the aboveCorrect answer is option 'C'. Can you explain this answer?
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