GK
ACCOUNTING
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
Out of share premium not collected in cash
|
|
|
Out of free reserves built out of genuine profit
|
|
|
Out of the Reserves created by revaluation of fixed assets
|
|
|
Without any provision for it in the Articles of Association of the company
|
Detailed explanation-1: -Bonus shares are issued by cashing in on the free reserves of the company. The assets of a company also consist of cash reserves. A company builds up its reserves by retaining part of its profit over the years (the part that is not paid out as dividend).
Detailed explanation-2: -Fully paid up bonus shares may be issued only out of free reserves, securities premium account or capital redemption reserve account. (Section 63(1) The bonus shares shall not be issued in lieu of dividend.
Detailed explanation-3: -Bonus issues increase a company’s outstanding shares but not its market capitalization. Companies usually fund a bonus issue through profits or existing share reserves. The issuance of bonus shares is not taxable; however, shareholders must still pay capital gains tax if they sell them for a net gain.
Detailed explanation-4: -The bonus issue is made out of free reserves built out of genuine profits or share premium collected in cash. 4. Reserves created by revaluation of fixed assets are not capitalized for bonus shares.
Detailed explanation-5: -A bonus issue shall be made only out of free reserves, securities premium account or capital redemption reserve account and built out of the genuine profits or securities premium collected in cash and reserves created by revaluation of fixed assets shall not be capitalised for this purpose.