GK
ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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General reserve
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Surplus in profit and loss account
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Securities premium collected in cash only
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All of the above
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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: -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-3: -Yes, Bonus Shares can be issued by CRR. Yes, a company can use its capital reserve account to issue bonus shares to its shareholders.