In this post we will discuss about Bonus shares .
๐Ÿ“Œ What are Bonus Shares?
๐Ÿ“Œ Define Bonus Shares.
๐Ÿ“Œ In what circumstances should Bonus Shares be issued?
๐Ÿ“Œ Discuss the Guidelines of SEBI for Bonus Shares?
๐Ÿ“Œ Guidelines of SEBI for Bonus Shares.
๐Ÿ“Œ What Accounting Entries are passed for Bonus Shares?
๐Ÿ“Œ Accounting Entries passed for Bonus Shares.
Let’s Begin…..

Q:- What are Bonus Shares?
Bonus Shares:- If a company issues fresh shares (without charging anything) at no cost, it is called bonus shares.
Q:- In what circumstances should Bonus Shares be issued?
Ans:-Circumstances for issuing Bonus shares:-

1.When the quantity of accumulated proceeds and reserve becomes really large.

2.When the rate of dividend of the company is much forward than normal rate of dividend, then to make the rate of dividend equal  to normal rate of donative.

3. When the rate of Shares rises so high that sale and purchase is not conducted usually.

Q:- Guidelines for issue of bonus shares.
Guidelines for Issue of Bonus shares:
The securities and exchange board of India (SEBI) by an order on 27th January, 2000 , issued the following instructions for issue of bonus shares.

1.No organization will, pending discussion of FCDs/PCDs through reservation of shares in relation to such convertible part of FCDs or PCDs

2. The shares so reserved could be issued at the time of conversion of debentures on the similar terms on which the bonus issues were made.

3. The bonus shares is made out of free reserves.

4. Revaluation profits cannot be utilised to provide bonus shares.
5. The bonus shares cannot be issued, in lieu of dividend.

6. The existing share capital should be Fully paid up at the time of bonus shares.

7. No bonus can be take up till the full payment of arrears of internet outstanding , repayment of installment on debentures and or on fixed deposits.

8. No bonus can be made if the company has defaulted in regarding the statutory payment to employees.

9. After declaration of bonus the shares must be issued within 6 months.

10. Bonus shares can be issued only if it is provided in Articles of Association.

11. If the authorised share capital is increased because of bonus shares, a resolution must be passed in the meeting of shareholders regarding increase in authorized capital.
Q:- what accounting Entries are passed for Bonus shares?
The following entries are going to be passed regarding bonus shares. 
(ยก) If declaration of bonus is proposed out of current year’s profits:

(a) on making proposal regarding bonus :
Profits and loss Appropriation  A/C ……. Dr.
 To proposal bonus to shareholder A/c 
 (Proposal made for the declaration of bonus )

(b) On approval of the proposal regarding bonus within the general meeting:
Proposed bonus to shareholder A/c …….dr
 To bonus to shareholder A/c

Note: If bonus is proposed out of past years profits or from reserves or from other reserves, there is no necessity to put a proposal.

(ยกยก) Directly in the meeting of shareholders the proposal are going to be accepted or rejected .If proposal accepted the entry will be:

General Reserve A/c ………Dr
Other free Reserve A/c ……dr
Securities A/c…….dr
Capital Redemption reserve A/c ……dr 
        To Bonus to shareholders.    A/c 
        (Bonus from reserves being approved)

Payment of Bonus :

(1) By making partly paid up shares Fully paid:
(ยก) Share final call A/c ………dr 
  To share capital A/c.
      (Share final call money due )

(ยกยก) On utilizing the quantity (amount )of bonus:
Bonus to shareholder A/c …….dr 
 To share final call A/c
(Bonus applied towards share call)

(2) To issue fresh fully paid up bonus shares to the shareholder without any cost  (free of cost):

(ยก) On declaration of bonus share :

P&L Appropriation A/c or general Reserve A/c ……dr 
 Or capital Redemption reserve A/c
  Securities premium A/c ……     dr.  
Or capital reserve A/c……….       dr. 
To bonus to share shareholders A/c 
(Bonus declared out of….)

(ยกยก) On issue of bonus shares at par :
 Bonus to shareholder A/c ……dr.
To share capital A/c 
(Bonus shares at par)

(ยกยกยก)  issue bonus shares at premium:
Bonus to shareholder A/c …. Dr.
To share capital A/c
To securities premium A/c
(Bonus shares issued at premium)

Leave a Reply

Your email address will not be published. Required fields are marked *