Financial accounting pdf notes, syllabus 2020 bba, bcom. A bonus issue, also known as a scrip issue or a capitalization issue, is an offer of free additional shares to existing shareholders. Ordinary share capital represents equity of a company and therefore its issuance is recorded as part of the equity reserves in the balance sheet. A shareholder having shares would therefore receive 1500 bonus shares x 3. They are issued to capitalize profits of the company. 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. Bonus shares can be issued only if articles of association permit such an issue. Section 81 of the companies act requires that a public limited company. Financial accounting pdf notes, syllabus, books bba, bcom 2020. Accounting for bonus issue learning objectives after studying this chapter, you will be able to.
Bonus shares are the shares that are allotted by a company to existing equity shareholders without any. Solution journal entries in the books of bharat ltd. Issue of ordinary shares is accounted for by allocating the proceeds between the following accounts. This chapter deals with the accounting for share capital of companies. Following journal entries are required to account for a bonus issue. Operating procedures manual requires that for the purpose of accounting for bonus issue. From accounting point of view the share capital of the company can be classified. Accounting entries on issue of right shares and bonus shares. Introduction capitalisation of profits refers to the process of converting profits or reserves into paid up capital. 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.
Ordinary shares are also known as common stock and equity shares. Accounting for bonus shares issue accountingsimplified. Bonus shares are the shares allotted to existing equity shareholders without any consideration being received from them, in cash or in kind. Pdf accounting for bonus issue learning objectives mahen. 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 should not be issued out of revaluation reserves.
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