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Bonus share

CHAITRI SUDHAKARBHAI KHAROD (ARTICLE) (752 Points)

21 December 2020

if bonus shares are issued out of capital redemption reserve , security premium then it can't be used to make partly paid shares as fully paid while in case of bonus issued out of general reserve then it can be used to make partly paid shares as fully paid. why??
what is the logic??

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12 Replies

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 21 December 2020

I have to look up, as far I’m concerned, CRR has a purpose ie to redeem shares and not to issue new shares out of it. So the company uses general reserves.

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yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 21 December 2020

Here are some company laws related to bonus issue: https://www.caclubindia.com/experts/bonus-issue-reserves--981390.asp

CHAITRI SUDHAKARBHAI KHAROD (ARTICLE) (752 Points)
Replied 21 December 2020

Okay....thanks a lot ma'am

ayusmita (Tax consultant) (5885 Points)
Replied 21 December 2020

Issuing bonus share doesn't generate cash for the company it only helps in decreasing the value of dividend per share in the future pretext
in other words it provides income to the shareholders
increasing the number of outstanding shares decreasing the stock price making the stock more affordable for the retail investors
I might be wrong

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 21 December 2020

MAthematically, it doesn’t compensate for partially paid shares as no cash is involved like you said. But this strategy can be used to persuade shareholders pay off their final call.

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CHAITRI SUDHAKARBHAI KHAROD (ARTICLE) (752 Points)
Replied 21 December 2020

Capital redemption reserve and security premium etc are used only for their specific purpose but general reserve can be used for general purpose then I think it is used to make partly paid up shares to fully paid by issuing bonus.....but balance after completion of specific purpose of capital redemption reserve and security premium may be used in issuing bonus but it does not make partly paid up to fully paid...is it correct????

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 21 December 2020

The list in the above link- source of reserve used in issue must be followed. It doesn’t make any difference to partially paid shares because, a bonus issue will not take place not unless it is converted to fully paid up shares. After fully paid, the issue of bonus uses standard procedure.

CHAITRI SUDHAKARBHAI KHAROD (ARTICLE) (752 Points)
Replied 21 December 2020

Yeah ma'am that's my question...if we use general reserve then shares which are partly paid up can be converted into fully paid...but if we use CRR or SP then only bonus shares are issued not conversion of partly into fully....

ayusmita (Tax consultant) (5885 Points)
Replied 21 December 2020

Agree with yasaswi gomes

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 21 December 2020

To convert them into fully paid, upon receiving the final call money, it is credited to capital account and there is no involvement of General reserve. After this, when bonus is issued, general reserves are debited, I have an easy illustration here: https://ca-intermediate.in/wp-content/uploads/2018/08/Chapter-6-Accounting-for-Bonus-Issue-and-Right-Issue.pdf

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yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 21 December 2020

I have sent you a link through PM which has an easy illustration, capital is credited when final call is complete. Then general reserves is debited while issuing bonus sharesu