CA Foundation Exam > CA Foundation Questions > Which of the following statement is false?a)T...
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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?
Verified Answer
Which of the following statement is false?a)The bonus shares shall not...
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.
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Which of the following statement is false?a)The bonus shares shall not...
Understanding Bonus Shares
Bonus shares are additional shares given to existing shareholders without any cost, based on the number of shares they already own. Let's break down the statements:
Statement Analysis
- a) The bonus shares shall not be issued in lieu of dividends.
- This is true. Bonus shares are issued to capitalize reserves and are not a substitute for cash 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 typically cannot withdraw the recommendation without significant implications, as it might mislead shareholders and affect market confidence.
- c) In case of bonus issue there is no cash flow.
- This statement is true. Bonus shares are issued from accumulated profits or reserves and do not involve cash outflow.
- d) Issue of bonus shares does not affect the market value of the company.
- This statement is true. While the number of shares increases, the overall value remains the same, leading to a dilution effect on earnings per share, but not on the company's overall market value.
Conclusion
The key takeaway here is that once a bonus issue is recommended, its withdrawal can harm investor trust and contradict corporate governance norms. Hence, option 'b' is indeed the false statement in this context. Understanding these nuances is crucial for financial decision-making in corporate finance.
Bonus shares are additional shares given to existing shareholders without any cost, based on the number of shares they already own. Let's break down the statements:
Statement Analysis
- a) The bonus shares shall not be issued in lieu of dividends.
- This is true. Bonus shares are issued to capitalize reserves and are not a substitute for cash 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 typically cannot withdraw the recommendation without significant implications, as it might mislead shareholders and affect market confidence.
- c) In case of bonus issue there is no cash flow.
- This statement is true. Bonus shares are issued from accumulated profits or reserves and do not involve cash outflow.
- d) Issue of bonus shares does not affect the market value of the company.
- This statement is true. While the number of shares increases, the overall value remains the same, leading to a dilution effect on earnings per share, but not on the company's overall market value.
Conclusion
The key takeaway here is that once a bonus issue is recommended, its withdrawal can harm investor trust and contradict corporate governance norms. Hence, option 'b' is indeed the false statement in this context. Understanding these nuances is crucial for financial decision-making in corporate finance.
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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? for CA Foundation 2025 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about 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? covers all topics & solutions for CA Foundation 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for 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.Correct answer is option 'B'. Can you explain this answer? for CA Foundation 2025 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about 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? covers all topics & solutions for CA Foundation 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for 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?.
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