Bonus act doubt

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isha

isha (Querist)
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20 February 2012 Explain wat is allocable surplus nd provision of sec 15(set on/set off of allocable surplus )

Ajay Mishra

Ajay Mishra (Expert)
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20 February 2012 Hi

The term “bonus shares” can be defined in a lay man’s language as, “When a company is prosperous and accumulates surplus, it converts its surplus into capital and divides the capital among the members in proportion to their rights. This is done by issuing fully paid shares representing the increased capital.” While on the other hand, astoundingly, Companies Act, 1956 does not specifically define the term “bonus share.” It however throws light on the matter through Section 78 and Section 205. If a company declares a bonus out of undivided capitalized profits and allots to its shareholders in satisfaction of the bonus unissued shares in the company as fully paid up, the shares so allotted are known as bonus shares and they are capital and not income in the hands of shareholders.

A bonus shares are a free share of stock given to the existing shareholders of the Company. Issuance of bonus shares is a way of bringing the paid up capital of the company in line with actual capital employed in the business. The provisions to issue bonus shares comes to notice of the company that have substantial reserve in their balance sheet against a relatively small paid up capital base. In current scenario, the question of the need to capitalize a portion of their reserves by issue of bonus shares to the existing shareholders has been considered by the numbers of company. The issue of bonus shares help in bringing about proper balance between paid up capital and accumulated reserves, elicit good public response to equity issue of the public company and helps in improving the market image of the company.
Bonus shares are issued by capitalizing the free reserves by issuing fully paid bonus shares to the existing shareholders who are required to pay nothing in lieu of bonus shares they get, because in a sense, free reserves belong to the equity shareholders who are ultimate owners of the company.
As per Department of Company Affairs vide Circular No. 9/94, dated 6-9-1994, existing private/closely held and unlisted companies not to issue bonus shares out of reserves created by revaluation of fixed assets.

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isha

isha (Querist)
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20 February 2012 Sir im glad uve explained so much....but allocable surplus nd bonus shares r dey da same???
Nd wat abt provision set on sett off???

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Guest

Guest (Expert)

25 August 2012 The principle of set on and set off of allocable surplus is as follows:

Where for any year the allocable surplus exceeds the amount of maximum bonus payable to the employees, then, the excess shall, subject to a limit of twenty percent of the total salary or wages of the employees, be carried forward for being set on in the succeeding year and so on to be utilized for the purpose of payment of bonus.

Where for any year there is no available surplus, or the allocable surplus in respect of that year falls short of the amount of minimum bonus payable to the employees, and there is no amount or sufficient amount carried forward and set on which could be utilized for the purpose of payment of the minimum bonus, then, such minimum amount or the deficiency, as the case may be, shall be carried forward for being set off in the succeeding year and so on. {Section 15}

Guest

Guest (Expert)

25 August 2012 Bonus payable under the Act is linked with profits. The employer has to calculate "gross profits" of his establishment in the manner specified in section 4. Then from "gross profits" so calculated he has to deduct the sums referred to in section 6 as prior charges. The balance is called "available surplus". A percentage of the available surplus calculated in accordance with the provisions of sub-section (4) of section 2 is called "allocable surplus". Where, in respect of any year the allocable surplus exceeds the amount of minimum bonus payable to the employees, the employer must pay to every employee in respect of that year bonus in proportion to the salary or wage earned by the employee during the year subject to a maximum of twenty percent of such salary or wage. {Subsection 2(4), 4 , 5, 6 & 11}