Bonus Issue and Right Issue – CA Inter Accounts Study Material

Bonus Issue and Right Issue – CA Inter Accounts Study Material is designed strictly as per the latest syllabus and exam pattern.

Bonus Issue and Right Issue – CA Inter Accounts Study Material

Theory Questions

Question 1.
Following is the extract of the Balance Sheet of X Ltd., a listed company as at March 31, 2012:
Bonus Issue and Right Issue - CA Inter Accounts Study Material 1
On April 30, 2012, the company decided to capitalize its reserves by way of Bonus shares issued at the rate of 1:4. Securities premium of ₹ 2,00,000 includes a premium of ₹ 40,000 for shares issued pursuant to a scheme of amalgamation. Capital reserve includes ₹ 3,20,000 being profit on sale of plant and machinery. The balance amount of capital reserve has been created due to revaluation of land.
Comment with reason on the following:
(i) Whether Revaluation Reserve can be capitalized?
(ii) How much amount of Capital reserve can be capitalized?
(iii) How much amount of ‘Securities Premium A/c’ can be capitalized?
(iv) Number of equity shares to be issued by way of bonus as on 30th April, 2012. (RTP)
Answer:
(i) As per SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009
‘Reserves created by Revaluation of fixed assets cannot be capitalized for the purpose of issuing bonus shares.’

(ii) As per SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009, ‘Capital Reserve’ realized in cash can be utilized for issue of fully paid Bonus shares. Therefore, ₹ 3,20,000 being profit on sale of plant, is a capital profit which has been realized in cash and can be utilized for issue of the bonus shares. For remaining balance in capital reserve account amounting ₹ 2,80,000 (6,00,000-3,20,000) has been created due to revaluation of land. Since, the same has not been realised in cash it cannot be capitalized.

(iii) As per SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009, Securities Premium collected in cash only can be utilized for Bonus issue, therefore only ₹ 1,60,000 (i.e. ₹ 2,00,000 – ₹ 40,000) can be utilized for Bonus issue.

(iv) Number of equity shares to be issued as bonus shares 1,80,000 (7,20,000/4) shares will be issued as bonus shares.

Bonus Issue and Right Issue - CA Inter Accounts Study Material

Bonus Issue – Simple Problems

Question 2.
Following items appear in the Trial Balance of B Ltd. as on 31st March, 2017:
Bonus Issue and Right Issue - CA Inter Accounts Study Material 2
The company decided to issue to equity shareholders bonus shares at the rate of 1 share for every 3 shares held. Company decided that there should be the minimum reduction in free reserves. Pass necessary Journal Entries in the books Hello Ltd. (RTP)
Answer:
Journal Entries
Bonus Issue and Right Issue - CA Inter Accounts Study Material 3

Question 3.
Following items appear in the Trial Balance of Saral Ltd. as on 31st March, 2014:
Bonus Issue and Right Issue - CA Inter Accounts Study Material 4
The company decided to issue to equity shareholders bonus shares at the rate of 1 share for every 3 shares held. Company decided that there should be the minimum reduction in free reserves. Pass necessary Journal Entries in the books Saral Ltd. (4 Marks) (May 2014)
Answer:
Bonus Issue and Right Issue - CA Inter Accounts Study Material 5

Bonus Issue and Right Issue - CA Inter Accounts Study Material

Question 4.
Following are the balances appear in the trial balance of Arya Ltd. as at 31st March, 2018.
Bonus Issue and Right Issue - CA Inter Accounts Study Material 6
On 1st April, 2018 the company has made final call @ ₹ 2 each on 1,00,000 Equity Shares. The call money was received by 15th April, 2018. Thereafter the company decided to issue bonus shares to equity shareholders at the rate of 1 share for every 5 shares held and for this purpose, it decided that there should be minimum reduction in free reserves. Pass Journal entries. (4 Marks) (May 2018)
Answer:
Journal Entries
Bonus Issue and Right Issue - CA Inter Accounts Study Material 7

Question 5.
Following is the extract of the Balance Sheet of P Ltd. as at 31st March, 20X1
Bonus Issue and Right Issue - CA Inter Accounts Study Material 8
On 1st April, 20X1, the Company has made final call @ ₹ 2 each on 2,70,000 equity shares. The call money was received by 20th April, 20X1. Thereafter, the company decided to capitalize its reserves by way of bonus at the rate of one share for every four shares held.

You are required to prepare necessary journal entries in the books of the com pany and prepare the relevant extract of the balance sheet as on 30th April, 20X1 after bonus issue. (RTF)
Answer:
Journal Entries
Bonus Issue and Right Issue - CA Inter Accounts Study Material 9

Balance Sheet [Extract] as at 30th April, 20X1 (after bonus issue)
Bonus Issue and Right Issue - CA Inter Accounts Study Material 10

Bonus Issue and Right Issue - CA Inter Accounts Study Material

Question 6.
Following is the extract of the Balance Sheet of X Ltd. as at 31st March, 2017
Bonus Issue and Right Issue - CA Inter Accounts Study Material 11
On 1st April, 2017, the Company has made final call @ ₹ 2 each on 2,70,000 equity shares. The call money was received by 20th April, 2017. Thereafter, the company decided to capitalize its reserves by way of bonus at the rate of one share for every four shares held.

Show necessary journal entries in the books of the company and prepare the extract of the balance sheet as on 30th April, 2017 after bonus issue. (RTP)
Answer:
Journal Entries
Bonus Issue and Right Issue - CA Inter Accounts Study Material 12

Balance Sheet [Extract] as at 30th April, 2017 (after bonus issue)
Bonus Issue and Right Issue - CA Inter Accounts Study Material 13

Bonus Issue and Right Issue - CA Inter Accounts Study Material

Question 7.
The following notes pertain to B Ltd.’s Balance Sheet as on 31st March, 20X1:
Bonus Issue and Right Issue - CA Inter Accounts Study Material 14
On 2nd April, 20X1, the company made the final call on equity shares @ ₹ 2 per share. The entire money was received in the month of April, 20X1.

On 1st June, 20X1, the company decided to issue to equity shareholders bonus shares at the rate of 2 shares for every 5 shares held.

You are required to prepare journal entries for all the above-mentioned transactions. Also prepare the notes on Share Capital and Reserves and Surplus relevant to the Balance Sheet of the company immediately after the issue of bonus shares.
Answer:
Journal Entries
Bonus Issue and Right Issue - CA Inter Accounts Study Material 15

Notes to Accounts:
Bonus Issue and Right Issue - CA Inter Accounts Study Material 16

Bonus Issue and Right Issue - CA Inter Accounts Study Material

Bonus Issue – Advanced Problems

Question 8.
The following notes pertain to Brite Ltd’s Balance Sheet as on 31st March, 2012:
Bonus Issue and Right Issue - CA Inter Accounts Study Material 17
On 2nd April, 2012, the company made the final call on equity shares @ ₹ 2 per share. The entire money was received in the month of April, 2012.

On 1st June, 2012, the company decided to issue to equity shareholders bonus shares at the rate of 2 shares for every 5 shares held and for this purpose, it decided to utilize the capital reserves to the maximum possible extent.

Pass journal entries for all the above-mentioned transactions. Also prepare the notes on Share Capital and Reserves and Surplus relevant to the Balance Sheet of the company immediately after the issue of bonus shares. (8 Marks) (Nov. 2012)
Answer:
Journal Entries
Bonus Issue and Right Issue - CA Inter Accounts Study Material 18

Notes to Accounts
Bonus Issue and Right Issue - CA Inter Accounts Study Material 19
Notes:
Capital reserve and Securities premium have been assumed as realized in cash and hence can be used for issue of fully paid bonus shares.

Bonus Issue and Right Issue - CA Inter Accounts Study Material

Question 9.
Following is the extract from the Balance Sheet of M/s. Yahoo Ltd. as at 31st March, 2011:
Bonus Issue and Right Issue - CA Inter Accounts Study Material 20
On 1st April, 2011, the company has made a final call @ ₹ 2.50 each on 1,80,000 equity shares. The call money was received by 30th April, 2011. Thereafter the company decided to capitalize its reserves by issuing bonus shares at the rate of one share for every three shares held. Securities premium of ₹ 50,000 includes a premium of ₹ 20,000 for shares issued to vendor for purchase of a special machinery. Capital reserve includes ₹ 60,000 being profit on exchange of plant and machinery.

Show necessary Journal Entries in the books of the company and prepare the extract of the Balance Sheet after bonus issue. Necessary assumption, if any, should form part of your answer. (Nov. 2011)
Answer:
Journal Entries
Bonus Issue and Right Issue - CA Inter Accounts Study Material 21

Balance Sheet [Extract] (After bonus issue)
Bonus Issue and Right Issue - CA Inter Accounts Study Material 22
Assumption:
It is assumed that balance of capital reserve and securities premium is collected in cash only.

Bonus Issue and Right Issue - CA Inter Accounts Study Material

Right Issue – Value of Right

Question 10.
A company offers new shares of X 100 each at 25% premium to existing shareholders on the basis one for five shares. The cum-right market price of a share is ₹ 200.
You are required to calculate the (i) Ex-right value of a share; (ii) Value of a right share? (RTP)
Answer:
Ex-right value of the shares
Bonus Issue and Right Issue - CA Inter Accounts Study Material 23
= ₹ 1,125/6 shares
= ₹ 187.50 per share.
Value of right = Cum-right value of the share – Ex-right value of the share
= ₹ 200 – ₹ 187.50 = ₹ 12.50 per share.

Bonus Issue and Right Issue - CA Inter Accounts Study Material

Question 11.
Zeta Ltd. has decided to increase its existing share capital by making rights issue to its existing shareholders. Zeta Ltd. is offering one new share for every two shares held by the shareholder. The market value (cum-right) of the share is ₹ 360 and the company is offering one right share of ₹ 180 each to its existing shareholders. You are required to calculate the value of a right. What should be the ex-right value of a share? (RTP)
Answer:
Ex-right value of the shares
Bonus Issue and Right Issue - CA Inter Accounts Study Material 24
= ₹ 900/3 shares
= ₹ 300 per share.

Value of right
= Cum-right value of the share – Ex-right value of the share
= ₹ 360 – ₹ 300 = ₹ 60 per share.

Conclusion:
Thus, any one desirous of having a confirmed allotment of one share from the company at ₹ 180 will have to pay ₹ 120 (2 shares × ₹ 60) to an existing shareholder holding 2 shares and willing to renounce his right of buying one share in favour of that person.

Bonus Issue and Right Issue - CA Inter Accounts Study Material

Question 12.
A company offers new shares of ₹ 100 each at 25% premium to existing shareholders on one for four basis. The cum-right market price of a share is ₹ 150. Calculate the value of a right. (RTP)
Answer:
Bonus Issue and Right Issue - CA Inter Accounts Study Material 25
= ₹ 725/5 shares
= ₹ 145 per share.

Value of right
= Cum-right value of the share – Ex-right value of the share
= ₹ 150 – ₹ 145
= ₹ 5 per share.

Mix Problems

Question 13.
The following is the Balance Sheet of Bumbum Limited as at 31st March, 2009:
Bonus Issue and Right Issue - CA Inter Accounts Study Material 26
In Annual General Meeting held on 20th June, 2009 the company passed the following resolutions:

  1. To split equity, share of ? 10 each into 5 equity shares of ? 2 each from 1st July, 2009.
  2. To redeem 8% preference shares at a premium of 5%.
  3. To redeem 9% Debentures by making offer to debenture holders to convert their holdings into equity shares at ? 10 per share or accept cash on redemption.
  4. To issue fully paid bonus shares in the ratio of one equity share for every 3 shares held on record date.

On 10th July, 2009 investments were sold for? 5,55,000 and preference shares were redeemed.

40% of Debenture holders exercised their option on accept cash and their claims were settled on 1st August, 2009.

The company fixed 5th September, 2009 as record date and bonus issue was concluded by 12th September, 2009.

You are requested to journalize the above transactions including cash trans-actions and prepare Balance Sheet as at 30th September, 2009. All working notes should form part of your answer. (12 Marks) (Nov. 2010)
Answer:
Journal Entries
Bonus Issue and Right Issue - CA Inter Accounts Study Material 27
Bonus Issue and Right Issue - CA Inter Accounts Study Material 28
Bonus Issue and Right Issue - CA Inter Accounts Study Material 29

Balance Sheet as at 30th September, 2009
Bonus Issue and Right Issue - CA Inter Accounts Study Material 30

Working Notes:
Bonus Issue and Right Issue - CA Inter Accounts Study Material 31
Bonus Issue and Right Issue - CA Inter Accounts Study Material 32

Bonus Issue and Right Issue - CA Inter Accounts Study Material

Question 14.
The Balance Sheet of Dee Limited as on 31st March, 2009 was as follows:
Balance Sheet as at 31st March, 2009
Bonus Issue and Right Issue - CA Inter Accounts Study Material 33
At the General Meeting it was resolved to:

  1. Pay proposed dividend of 10% in cash.
  2. Give existing shareholders the option to purchase one share of ₹ 10 each at ₹ 15 for every five shares held. This option was taken up by all the shareholders.
  3. Redeem the debentures at a premium of 5% and also confer option to the debenture holders to convert 50% of their holding into equity shares at a predetermined price of ₹ 15 per share and balance payment to be made in cash.

Holders of 3,000 debentures opted to get their debentures redeemed in cash only while the rest opted for getting the same converted into equity shares as per the terms of issue. Debenture redemption fund investment realized ₹ 1,80,000 on sales.

You are required to redraft the Balance Sheet after giving effects to the right issue and redemption of debentures. Also show the calculations in respect of number of equity shares issued and cash payment. (16 Marks) (Nov 2009)
Answer:
Balance Sheet as at 31st March, 2009
Bonus Issue and Right Issue - CA Inter Accounts Study Material 34

Computation of number of equity shares issued:
Bonus Issue and Right Issue - CA Inter Accounts Study Material 35

Cash payment to debenture holders:
Bonus Issue and Right Issue - CA Inter Accounts Study Material 36

Working Notes:
1. Debenture Redemption Reserve A/c
Bonus Issue and Right Issue - CA Inter Accounts Study Material 37

2. General Reserve A/c
Bonus Issue and Right Issue - CA Inter Accounts Study Material 38

3. Computation of Securities Premium
Bonus Issue and Right Issue - CA Inter Accounts Study Material 39+

4. Cash A/c
Bonus Issue and Right Issue - CA Inter Accounts Study Material 40

Bonus Issue and Right Issue - CA Inter Accounts Study Material

Question 15.
Extra Ltd. furnishes you with the following Balance Sheet as on 31st March, 2010: (16 Marks) (Nov. 2010)
Bonus Issue and Right Issue - CA Inter Accounts Study Material 41

  1. The company redeemed the preference shares at a premium of 10% on 1st April, 2010.
  2.  It also bought back 3 lakhs equity shares of ₹ 10 each at ₹ 30 per share. The payment for the above were made out of huge bank balances, which appeared as a part of the current assets,
  3. Included in its investment were ‘investments in own debentures’ costing ₹ 2 lakhs (face value ₹ 2.20 lakhs). These debentures were cancelled on 1st April, 2010.
  4. The company had 1,00,000 equity stock options outstanding on the above-mentioned date, to the employees at ₹ 20 when the market price was ₹ 30. (This was included under current liabilities). On 1.04.2010 employees exercised their options for 50,000 shares.
  5. Pass the journal entries to record the above.
  6. Prepare Balance Sheet as at 01.04.2010.

Answer:
Bonus Issue and Right Issue - CA Inter Accounts Study Material 42
Bonus Issue and Right Issue - CA Inter Accounts Study Material 43
Bonus Issue and Right Issue - CA Inter Accounts Study Material 44

Balance Sheet as on 01.04.2010
Bonus Issue and Right Issue - CA Inter Accounts Study Material 45

Bonus Issue and Right Issue - CA Inter Accounts Study Material

Working Notes:
Bonus Issue and Right Issue - CA Inter Accounts Study Material 46
Bonus Issue and Right Issue - CA Inter Accounts Study Material 47

Leave a Comment

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