1/24/2013

1

IPCC Group-I Paper 1: Accounting, Chapter 4

CA SK Chhabra

1/24/2013

2

What is Bonus Issue? SEBI Guidelines on Bonus Issues Uses of Securities Premium Accounting Entries Practical Questions

1/24/2013

3

Bonus Shares are shares issued by a company free of cost to its existing shareholders on a pro rata basis.

1/24/2013

4

SEBI Guidelines 2000 for Bonus

1/24/2013

5

Bonus Issues can be made only out of ◦ Free Reserve built out of the profits or ◦ Capital redemption reserve or ◦ Securities Premium collected in Cash only

For pending Conversion of Fully Convertible(FCD)/ Partly Convertible Debentures (PCD) and bonus share are issued◦ Similar benefit is extended to the holder of such

FCD/PCD on their conversion

1/24/2013

6

Reserves from Revaluation of Fixed Assets ◦ Can not be used for Issue of Bonus Shares

Bonus Issue ONLY for Fully Paid-Up Shares Partly Paid-up Shares can be made Fully Paid-up◦ Receipt of Cash◦ Bonus Unpaid Call – By Paying through Reserves

1/24/2013

7

If nothing specified always assume ◦ Securities Premium is received in cash and ◦ Capital Reserve is NOT received in Cash

1/24/2013

8

1/24/2013

9

Issue fully paid Bonus Shares ◦ Not to make Final Call as Bonus Call incase Final Call is

Unpaid

Write off ◦ Preliminary Expenses◦ Underwriting Commission etc

1/24/2013

10

Write off Discount on issue of Shares and Debentures

Write off Premium on Redemption of Shares and Debentures

Allow Buy Back of Shares ◦ Section77B

1/24/2013

11

Important Entries

1/24/2013

12

On giving Bonus by converting partly paid Shares into fully paid Share

On declaration of such BonusCapital Reserve A/c Dr.

(realized in cash only)General Reserve A/c Dr.Profit & Loss A/c Dr.

To Bonus to Shareholders A/c

1/24/2013

13

On giving Bonus by converting partly paid shares into fully paid share

On Making the Final Call due

Share Final Call A/c Dr.To Share Capital A/c

On Adjustment of Final CallBonus to Shareholders A/c Dr.

To Share Final Call A/c

1/24/2013

14

Capital Reserve and Securities Premium received in Cash Only can be utilized for issue of Fully Paid Bonus Shares

Free Reserves include Reserves like◦ Profit & Loss Account – Credit Balance◦ Revenue Reserves◦ General Reserve◦ Dividend Equalization Reserve◦ Any other Reserve which can be used for payment of

Dividend

1/24/2013

15

Converting Partly Paid-up Shares into Fully Paid-Up by issue of Bonus

1/24/2013

16

Following items in the Trial Balance of Gopal Ltd. As at 31st March 2012:

40,000 Equity Shares of Rs. 10 each, Rs. 7.50 paid up Rs.3,00,000 Capital Redemption Reserve Rs.30,000 Plant Revaluation Reserve Rs.10,000 Securities Premium Account Rs.35,000 General Reserve Rs.1,00,000 Profit & Loss Account Rs.50,000 Capital Reserve ( including Rs. 35,000 being Profit on

Sale of Machinery) Rs.75,000

The company decided to convert the partly paid equity shares into fully paid shares by way of bonus.

Required: Pass the necessary journal entries

1/24/2013

17

Capital Redemption Reserve, Plant Revaluation Reserve and Securities Premium cannot be capitalized for converting partly paid shares into fully paid shares

Capital Reserve realized in cash can be utilized for bonus issue

Capital Redemption Reserve and Securities Premium can be used to issue only fully-paid bonus shares

1/24/2013

18

Date Particulars L.F Dr. (Rs.) Cr. (Rs.)

(i) Equity Share Final Call A/c Dr.To Equity Share Capital A/c

(Being the final call of Rs. 2.50 each on 40,000 equity shares to make them fully paid up)

1,00,0001,00,000

1/24/2013

19

Date Particulars L.F Dr. (Rs.) Cr. (Rs.)

(ii) Capital Reserve A/c Dr.General Reserve A/c Dr.

To Bonus to Shareholders A/c(Being the transfer of Rs. 25,000 from Capital Reserve & Rs. 75,000 from General Reserve to make the partly paid up shares fully paid up)

35,00065,000

1,00,000

1/24/2013

20

Date Particulars L.F Dr. (Rs.) Cr. (Rs.)

(iii) Bonus to Shareholders A/c Dr.To Equity Share Final Call A/c

(Being the amount due on final call adjusted against transfer from General Reserve to Bonus to Shareholders A/c)

1,00,0001,00,000

1/24/2013

21

Issue of Fully Paid Bonus Shares

1/24/2013

22

Following items appear in the Trial Balance of Govind Ltd. As at 31st March, 2012.

40,000 Equity Shares of Rs.10 each Rs.4,00,000 Capital Redemption Reserve Rs.30,000 Plant Revaluation Reserve Rs.10,000 Securities Premium Account Rs.35,000 General Reserve Rs.1,00,000 Profit & Loss Account Rs.50,000 Capital Reserve (including Rs.25,000 being

Profit on Sale of Machinery) Rs.75,000

The company decided to issue bonus shares to its shareholders at the rate of one share for every four shares held

Required: Pass the necessary journal entries. It is desired that there should be minimum reduction in free reserves

1/24/2013

23

Plant Revaluation Reserve cannot be utilized to issue bonus shares

Capital Reserve realized in cash can be utilized for bonus issue

1/24/2013

24

Date Particulars L.F Dr. (Rs.) Cr. (Rs.)(i) Capital Reserve A/c Dr.

Capital Redemption Reserve A/c Dr.Securities Premium A/c Dr.General Reserve A/c Dr.

To Bonus to Shareholders A/c(Being the bonus declared by issuing 1 bonus share for every 4 shares held as per general body’s resolution dated)

25,00030,00035,00010,000

1,00,000

1/24/2013

25

Date Particulars L.F Dr. (Rs.) Cr. (Rs.)(ii) Bonus to Shareholders A/c Dr.

To Equity Share Capital A/c(Being the issue of 10,000 shares of Rs. 10 each by way of bonus)

1,00,0001,00,000

1/24/2013

26

Comprehensive Bonus Problem

1/24/2013

27

Following is the extract of the Balance sheet of Mohan Ltd. as at 31st March, 2012

Particulars Rs.Issued and Subscribed capital:90,000 Equity shares of Rs.10 each, Rs.8 paid up 7,20,000Reserves and surplus:General Reserve 1,20,000Capital Reserve 75,000Securities premium 25,000Profit and Loss Account 2,00,000Secured Loan:12% Partly Convertible Debentures @ Rs.100 each 5,00,000

1/24/2013

28

On 1st April, 2012, the Company has made final call @ Rs.2 each on 90,000 equity shares. The call money was received by 20th April, 2012. Thereafter, the company decided to capitalize its reserves by way of bonus at the rate of one share for every four shares held. Securities premium of Rs.25,000 includes a premium of Rs.5,000 for shares issued to vendors pursuant to a scheme of amalgamation. Capital reserves include Rs.40,000, being profit on sale of plant and machinery, 20% of 12% debentures are convertible into equity shares of Rs.10 each fully paid on 1st July, 2012.

Pass the journal entries

1/24/2013

29

DATE PARTICULARS DEBIT[RS] CREDIT[RS]

1 April Equity Share Final Call A/C Dr To Equity Share Capital A/C

180000180000

1/24/2013

30

20 April Bank A/C Dr To Equity Share Final Call

180000180000

DATE PARTICULARS DEBIT[RS] CREDIT[RS]

1/24/2013

31

Capital Reserve A/C Dr Securities Premium A/C Dr General Reserve A/C Dr Profit And Loss A/C Dr

To Bonus To Shareholders

400002000012000045000

225000

DATE PARTICULARS DEBIT[RS] CREDIT[RS]

1/24/2013

32

20 April Bonus To Shareholders A/C Dr To Equity Share Capital A/C

225000225000

DATE PARTICULARS DEBIT[RS] CREDIT[RS]