{"id":25095,"date":"2023-05-16T11:26:15","date_gmt":"2023-05-16T05:56:15","guid":{"rendered":"https:\/\/gstguntur.com\/?p=25095"},"modified":"2023-05-29T12:36:53","modified_gmt":"2023-05-29T07:06:53","slug":"accounting-for-bonus-issue-and-right-issue","status":"publish","type":"post","link":"https:\/\/gstguntur.com\/accounting-for-bonus-issue-and-right-issue\/","title":{"rendered":"Accounting for Bonus Issue and Right Issue – CA Inter Accounts Question Bank"},"content":{"rendered":"

Accounting for Bonus Issue and Right Issue \u2013 CA Inter Accounts Question Bank<\/a> is designed strictly as per the latest syllabus and exam pattern.<\/p>\n

Accounting for Bonus Issue and Right Issue – CA Inter Accounts Question Bank<\/h2>\n

Question 1.
\nWrite a note on \u2018Bonus share?
\nAnswer:
\nBonus Shares: Bonus Shares are shares issued to existing Shareholders free of Cost by Capitalizing Free Reserves. But Company can issue Bonus Shares when Articles of Association authorize the same. In case the Company issuing bonus shares is a Listed Company, the Guidelines issued by SEBI must be complied with. Only existing Shareholders are entitled to receive Bonus Shares. Bonus Shares are be issued to only those Shareholders who hold fully paid up Shares. An issuer, announcing a bonus issue after the approval of its BOD, and not requiring shareholders approval for capitalisation of profits or reserves for making the bonus issue, shall implement the bonus issue within fifteen days from the date of approval of the issue by its BOD.<\/p>\n

\"Accounting<\/p>\n

Question 2.
\nThe following is the Balance Sheet of Bumbum Limited as at 31st<\/sup> March, 2009:
\nSources of Funds \u20b9
\n\"Accounting
\nIn Annual General Meeting held on 20th<\/sup> June, 2009 the company passed the following resolutions:
\n(i) To split equity share of \u20b9 10 each into 5 equity shares of \u20b9 2 each from 1st<\/sup> July, 09.
\n(ii) To redeem 8% preference shares at a premium of 5%.
\n(iii) To redeem 9% Debentures by making offer to debenture holders to convert their holdings into equity shares at \u20b9 10 per share or accept cash on redemption.
\n(iv) To issue fully paid bonus shares in the ratio of one equity share for every 3 shares held on record date.<\/p>\n

On 10th<\/sup> July, 2009 investments were sold for \u20b9 5,55,000 and preference shares were redeemed.
\n40% of Debentureholders exercised their option to accept cash and their claims were settled on 1st<\/sup> August, 2009.
\nThe company fixed 5th<\/sup> September, 2009 as record date and bonus issue was concluded by 12th<\/sup> September, 2009.
\nYou are requested to journalize the above transactions including cash transactions and prepare Balance Sheet as at 30th<\/sup> September, 2009. All working notes should form part of your answer. (Nov 2010, 12 marks)
\nAnswer:
\nBumbum Limited Journal Entries
\n\"Accounting
\n\"Accounting
\n\"Accounting<\/p>\n

Balance Sheet as at 30th<\/sup> September, 2009
\n\"Accounting<\/p>\n

Notes to Accounts
\n\"Accounting<\/p>\n

Working Notes:
\n\"Accounting
\n\"Accounting<\/p>\n

\"Accounting<\/p>\n

Question 3.
\nFollowing is the extract from the Balance Sheet of M\/s. Yahoo Ltd. as at 31st<\/sup> March, 2011:
\n\"Accounting
\n\"Accounting
\nOn 1st<\/sup> April, 2011, the company has made a final call @ \u20b9 2.50 each on 1,80,000 equity shares. The call money was received by 30th<\/sup> April, 2011. There after 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 \u20b9 50,000 includes a premium of \u20b9 20,000 for shares issued to vendor for purchase of a special machinery. Capital reserve includes \u20b9 60,000 being profit on exchange of plant and machinery.
\nShow 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, 8 marks)
\nAnswer:
\nAssumptions:
\n1. According to SEBI Guideline, only Capital Reserve and Securities Premium collected in cash can be utilized for the purpose of issue of bonus shares. It is assumed that balance of capital reserve and securities premium is collected in cash only.
\n2. It is also assumed that necessary resolutions have been passed and requisite legal requirements related to the issue of bonus shares have been complied with before issue of bonus shares.<\/p>\n

Working Note:
\nOn the basis of the above assumptions, the Authorised Capital should be increased as under:
\n\"Accounting
\nTotal authorised capital after bonus issue (\u20b9 20,00,000 + \u20b9 4,00,000) = \u20b9 24,00,000<\/p>\n

In the books of M\/s. Yahoo Ltd. Journal Entries
\n\"Accounting<\/p>\n

Extract of Balance Sheet (After bonus issue)
\n\"Accounting
\n\"Accounting<\/p>\n

Question 4.
\nThe following notes pertain to Brite Ltd.\u2019s Balance Sheet as on 31st<\/sup> March, 2012:<\/p>\n

Notes :
\n\"Accounting
\nOn 2nd<\/sup> April, 2012 the company made the final call on equity shares @ \u20b9 2 per share. The entire money was received in the month of April, 2012.<\/p>\n

On 1st<\/sup> 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.
\nPass 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
\nshares. (Nov 2012, 8 marks)
\nAnswer:
\nIn the books of Brite Ltd.
\nJournal Entries
\n\"Accounting<\/p>\n

Notes on Share Capital and Reserves & Surplus
\n\"Accounting<\/p>\n

Notes : As per SEBI Guidelines, Capital reserve and Securities premium have been assumed as realized in cash and hence car be used for issue of fully paid bonus shares.<\/p>\n

Question 5.
\nAnswer the following:
\nFollowing items appear in the Trial Balance of Saral Ltd. as on 31st<\/sup> March, 2014:
\n\"Accounting
\nThe 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. (May 2014, 4 marks)
\nAnswer:
\nIn the books of Saral Ltd.
\nJournal Entry
\n\"Accounting<\/p>\n

Question 6.
\nFollowing is the extract of balance sheet of Sunrise Ltd. as on 31st<\/sup> March, 2015:
\nIssued and subscribed capital:
\n40,000, 10% Preference shares of \u20b9 10 each fully paid : \u20b9 4,00,000
\n1,80,000 Equity shares of \u20b9 10 each, \u20b9 7.50 paid-up : \u20b9 13,50,000
\nReserves and surplus:
\nCapital reserve : \u20b9 1,60,000
\nGeneral reserve : \u20b9 2,00,000
\nSecurities premium : \u20b9 40,000
\nSurplus : \u20b9 3,20,000
\nThe company made the final call of \u20b9 2.50 per share from equity shareholders and duly received it. Thereafter, it was decided to capitalise its reserves by issuing bonus shares at the rate of 1 share for every 3 shares held. Capital reserve includes \u20b9 80,000 being profit on exchange of machinery.
\nPass journal entries with necessary assumptions. (June 2016, 5 marks) [CS Exe -1]
\nAnswer:
\nJournal Entries in the Books of Sunrise Ltd.
\n\"Accounting
\n\"Accounting<\/p>\n

\"Accounting<\/p>\n

Question 7.
\nFollowing are the balances appear in the trial balance of Arya Ltd. as at 31st<\/sup> March, 2018.
\nIssued and Subscribed Capital: \u20b9
\n10,000; 10% Preference Shares of \u20b9 10 each fully paid. : \u20b9 1,00,000
\n1,00,000 Equity Shares of \u20b9 10 each, \u20b9 8 paid up : \u20b9 8,00,000
\nReserves and Surplus:
\nGeneral Reserve : \u20b9 2,40,000
\nSecurities Premium (collected in cash) : \u20b9 25,000
\nProfit and Loss Account : \u20b9 1,20,000<\/p>\n

On 1st<\/sup> April, 2018 the company has made final call @ \u20b9 2 each on 1,00,000 Equity Shares. The call money was received by 15th<\/sup> 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. (May 2018, 5 marks)
\nAnswer:
\nIn the books of Arya Ltd. Journal Entries
\n\"Accounting<\/p>\n

Question 8.
\nAnswer the following:
\nFollowing is the extract of Balance Sheet of Prem Ltd. as at 31st<\/sup> March, 2018:
\n\"Accounting
\nOn 1st<\/sup> April, 2018, the company decided to capitalize its reserves by way of bonus at the rate of two shares for every five shares held.
\nShow necessary journal entries in the books of the company and prepare the extract of the balance sheet after bonus issue. (Nov 2019, 5 marks)
\nAnswer:
\nJournal Entries in the books of Prem Ltd.
\n\"Accounting
\nBalance Sheet (Extract) as on 1st<\/sup> April, 20 18 (after bonus issue)
\n\"Accounting
\nNotes to Accounts:
\n\"Accounting
\n\"Accounting
\nNote: Authorized capital has been increased by the minimum required amount i.e. \u20b9 7,80,000 (37,80,000 \u2014 30,00,000) in the above solution.<\/p>\n

Question 9.
\nAnswer the following:
\nFollowing items appear in the Trial Balance of Star Ltd. as on 31st<\/sup> March, 2019:
\n\"Accounting
\nOn 1st<\/sup> April, 2019, the Company has made final call on Equity shares @ \u20b9 2 per share. The entire money was received in the month of April, 2019.
\nOn 1st<\/sup> June, 2019, 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 that there should be minimum reduction in free reserves.
\nPass necessary journal entries in the Books of Star Ltd. (Jan 2021, 5 marks)<\/p>\n

\"Accounting<\/p>\n

Question 10.
\nThe Balance Sheet of ABC Ltd. as at 31st<\/sup> March, having Net Assets \u20b9 17,00,000 contained the following:
\n\"Accounting
\n\"Accounting
\nThe Company wanted to issue Bonus Shares to its Shareholders at the rate of One Share for every Two Shares held. Necessary resolutions were passed, requisite legal requirements were complied with.
\nRequires:
\n(a) Give effect to the proposal by passing Journal Entries in the books of the Company,
\n(b) Show the amended Balance Sheet.
\nAnswer:
\nJournal Entries in the Books of the ABC Ltd.
\n\"Accounting
\n\"Accounting<\/p>\n

Working Note:
\n1. Reserves not available for Bonus Issue: Plant Revaluation Reserve, Development Rebate Reserve and Investment Allowance Reserve, cannot be used for any type of Bonus Issue.<\/p>\n

2. Types of Bonus Issue: There are two types of Bonus Issue in the above case:
\n(a) Converting \u20b9 7.50 Paid up Shares into \u20b9 10 Paid Up: Securities Premium and Capital Redemption Reserve cannot be used for this purpose. So, the Company can utilize General Reserve and P& L A\/c only for this purpose.
\n(b) Issuing Additional Shares to Holders of Fully Paid Shares:
\nSecurities Premium and Capital Redemption Reserve can be fully utilized for this purpose. For balance requirement, General Reserve and P&L A\/c may be used.<\/p>\n

Question 11.
\nThe Paid up Capital of ABC Ltd. is \u20b9 10,00,000 consisting of 60,000 Equity Shares of \u20b9 10 eacti fully paid up and 50,000 Equity Shares of \u20b9 10 each, \u20b9 8 per share paid up. It has \u20b9 40,000 in Securities Premium Account, \u20b9 2,00,000 in Profit and Loss A\/c (Cr.) \u20b9 3,00,000 in General Reserve and \u20b9 60,000 in Capital Redemption Reserve Account.<\/p>\n

By way of Bonus Dividend, the Partly Paid up Shares are converted into Fully Paid Up Shares, and the holders of Fully Paid up Shares are also allotted Fully Paid Up Bonus Shares in the same ratio.
\nPass Journal Entries showing separately the two types of Bonus Issues stated above. It is desired that there should be minimum reduction in Free Reserves.
\nAnswer:
\nJournal Entries in the Books of the ABC Ltd.
\n\"Accounting
\n\"Accounting<\/p>\n

Note:
\n1. Additional Shares issued: Ratio of Bonus declared on partly paid shares is \u20b9 2 for every \u20b9 8 Paid -up Capital. So, Bonus Shares are issued at the rate of 1 for every 4 Shares held. Hence, the amount of Bonus payable to the holders of Fully Paid Shares is (1 Bonus Share \u00f7 4 Shares Held) \u00d7 60,000 Scares \u00d7 \u20b9 10 Issue Price = \u20b9 1,50,000.<\/p>\n

2. Bonus issue can be done by:
\n(a) Converting 50,000 \u20b9 8 Paid Up Shares into \u20b9 10 Paid Up: Securities Premium and Capital Redemption Reserve cannot be used for this purpose. Hence, the Company can utilize General Reserve and P&L Account only for this purpose.
\n(b) Issuing Additional Shares to the holders of fully paid shares: Securities Premium and Capital Redemption Reserve can be fully utilized for this purpose. For the balance requirements, General Reserve and Profit and Loss Account may be used.<\/p>\n

Question 12.
\nFollowing is the extract of the Balance Sheet of Xeta Ltd. as at 31st<\/sup> March, 2017:
\n\"Accounting
\n\"Accounting
\nOn 1st<\/sup> April, 2017, the Company has made final call @ \u20b9 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.
\nYou are required to give necessary journal entries in the books of the company and prepare the extract of the balance sheet as on 30th<\/sup> April, 2017 after bonus issue.
\nAnswer:
\nJournal Entries In the books of Xets Ltd.
\n\"Accounting
\n\"Accounting<\/p>\n

Extract of Balance Sheet as at 30th<\/sup> April, 2017 (after bonus issue)
\n\"Accounting<\/p>\n

Question 13.
\nDistinguish between the following :
\n\u2018Bonus shares\u2019 and \u2018rights shares\u2019. (June 2011, 3 marks) [CS Exe -1]
\nAnswer:
\nFollowing are the main points of distinction between bonus shares & right shares:<\/p>\n\n\n\n\n\n\n\n\n\n
Basic<\/td>\nBonus Shares<\/td>\nRight Shares<\/td>\n<\/tr>\n
1. Meaning<\/td>\nBonus shares are shares issued by a company free of cost to its existing shareholders on a pro rata basis out of free reserve.<\/td>\nWhen company issues further shares to existing shareholder in ratio of their holding Such issue is known as right issue.<\/td>\n<\/tr>\n
2. Cash flow<\/td>\nIn case of bonus issue there is no cash flow.<\/td>\nIn case of right issue there is cash inflow to the company.<\/td>\n<\/tr>\n
3. Consideration<\/td>\nCompany does not receive any consideration in case of bonus issue.<\/td>\nCompany receives consideration as shares are issued against cash.<\/td>\n<\/tr>\n
4. Authorization<\/td>\nBonus issue is made on the recommendation of the Board and authorization from general meeting of the company.<\/td>\nIn case of right issue authorization from members through ordinary or special resolution is necessary.<\/td>\n<\/tr>\n
5. Market value<\/td>\nIssue of bonus shares does not affect the market value of the company.<\/td>\nRight issue of shares affects the market value of the company.<\/td>\n<\/tr>\n
6. Section<\/td>\nIt is governed by Sec. 63 of the Companies Act, 2013.<\/td>\nIt is governed by Sec. 62 of the Companies Act, 2013.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Question 14.
\nFitness Ltd. is planning to raise funds by making rights issue of equity shares to part finance its expansion. The existing equity share capital of the company is \u20b9 40 lakh and the market value is \u20b9 45 per share. The company offered to its shareholders the right to buy 2 shares at \u20b9 12 each for every 5 shares held. You are required to calculate –
\n(i) Theoretical market price per share after the rights issue;
\n(ii) The value of rights; and
\n(iii) Percentage increase in share capital. (Dec 2015, 5 marks) [CS Exe -1]
\nAnswer:
\n(i) Calculation of Theoretical Market Price per Share after the Right Issue:
\n\"Accounting
\n(ii) The Value of Rights = Market Price – Theoretical Market Price
\n= 45 – 35.57 = 9.43
\n(iii) Percentage increase in Share Capital:
\n\\(=\\frac{\\text { No. of fresh Shares Issued }}{\\text { Total no. of Shares before Right Issue }}\\) \u00d7 100
\n= \\(\\frac{1,60,000}{4,00,000}\\) \u00d7 100 = 40%<\/p>\n

Working Notes:
\n1. No. of Shares Outstanding at Beginning
\n= \\(\\frac{40,00,000}{10}\\) = 4,00,000 Shares
\n2. No. of Shares Issued as Right Issue
\n= 4,00,000 \u00d7 \\(\\frac{2}{5}\\) = 1,60,000 Shares.<\/p>\n

\"Accounting<\/p>\n

Question 15.
\nThe Share of ABC Ltd of a Face Value of \u20b9 10 is being quoted at \u20b9 24. The Company has a plan to make a Rights Issue of one Equity Share for every four shares currently held at a Premium of 40% per Share. You are required to –
\n1. Determine the Minimum Price that can be expected of Share after the issue.
\n2. Calculate the Theoretical Value of the Rights alone.
\n3. Show the effect of the Right Issue on the wealth of a Shareholder who has 1,500 Shares, if
\n(a) He sells the entire rights, and
\n(b) He ignores the rights.
\nAnswer:
\nTheoritical value of Right:
\nRatio 1 : 4
\nEx-Rights Price per share = \\(\\frac{(\u20b9 24 \\times 4)+(\u20b9 14 \\times 1)}{5}\\) = \u20b9 22
\n\u2234 Issue Price = 10 + 40% = \u20b9 14
\nRights Value = \u20b9 8
\n\u2234 Value of Right = \\(\\frac{\u20b9 8}{4 \\text { shares }}\\) = \u20b9 2<\/p>\n

2. Effect on the Wealth of a shareholder
\n\"Accounting<\/p>\n

Question 16.
\nABC Limited\u2019s shares are currently selling at \u20b9 13 per share. There are 10,00,000 shares outstanding. The Company is planning to raise \u20b9 20
\nLakhs to finance a new project. Required:
\nWhat is the Ex-Right Price of Shares and the Value of a right, if
\n(a) The Firm offers one right share for every two Shares held.
\n(b) The Firm offers one right share for every four Shares held.
\nAnswer:
\nComputation of Ex-Rights Price and Value of a right
\n\"Accounting<\/p>\n

Question 17.
\nZeta 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
\nthe share is \u20b9 360 and the company is offering one right share of \u20b9 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?
\nAnswer:
\nEx-right value of the shares = (Cum-right value of the existing shares + Rights shares \u00d7 Issue Price) \/(Existing Number of shares + Number of Right shares)
\n= (\u20b9 360 \u00d7 2 Shares + \u20b9 180 \u00d7 1 Share)\/(2 + 1) Shares
\n= \u20b9900\/3 shares = \u20b9 300 per share.
\nValue of right = Cum-right value of the share – Ex-right value of the share
\n= \u20b9 360 – 300 = \u20b9 60 per share.
\nHence, any one desirous of having a confirmed allotment of one share from the company at \u20b9 180 will have to pay \u20b9 120 (2 shares \u00d7 \u20b9 60) to an existing shareholder holding 2 shares and willing to renounce his right of buying one
\nshare in favour of that person.<\/p>\n

Question 18.
\nRight Issue
\nA 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 \u20b9 150. Calculate the value of a right
\nAnswer:
\nEx-right value of the shares = (Cum-right value of the existing shares + Rights shares Issue Price) \/ (Existing Number of shares + Rights Number of shares)
\n= (\u20b9 150 \u00d7 4 Shares + \u20b9 125 \u00d7 1 Share) \/ (4 + 1) Shares = \u20b9 725 \/ 5 shares = \u20b9 145 per share.
\nValue of right = Cum-right value of the share – Ex-right value of the share
\n= \u20b9 150 – \u20b9 145 = \u20b9 5 per share.<\/p>\n","protected":false},"excerpt":{"rendered":"

Accounting for Bonus Issue and Right Issue \u2013 CA Inter Accounts Question Bank is designed strictly as per the latest syllabus and exam pattern. Accounting for Bonus Issue and Right Issue – CA Inter Accounts Question Bank Question 1. Write a note on \u2018Bonus share? Answer: Bonus Shares: Bonus Shares are shares issued to existing …<\/p>\n

Accounting for Bonus Issue and Right Issue – CA Inter Accounts Question Bank<\/span> Read More »<\/a><\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"spay_email":"","footnotes":""},"categories":[167],"tags":[],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/posts\/25095"}],"collection":[{"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/comments?post=25095"}],"version-history":[{"count":11,"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/posts\/25095\/revisions"}],"predecessor-version":[{"id":25269,"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/posts\/25095\/revisions\/25269"}],"wp:attachment":[{"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/media?parent=25095"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/categories?post=25095"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/tags?post=25095"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}