Full Text Transcript
4
A F B I
CCOUNTING OR ONUS SSUE
BASIC CONCEPTS
(cid:190) Bonus Issue means an offer of free additional shares to existing shareholders. A company
may decide to distribute further shares as an alternative to increase the dividend payout.
(cid:190) Bonus Issue is also known as a "scrip issue" or "capitalization issue".
(cid:190) Bonus issue has following major effects :
• Share capital gets increased according to the bonus issue ratio
• Liquidity in the stock increases.
• Effective Earnings per share, Book Value and other per share values stand reduced.
• Markets take the action usually as a favourable act.
• Market price gets adjusted on issue of bonus shares.
• Accumulated profits get reduced.
(cid:190) Bonus shares can be issued from following :
• General reserves
• Capital Reserve realized in cash
• Securities Premium realized in cash
Question 1
The following is the Balance Sheet of Bumbum Limited as at 31st March, 2009:
`
Sources of funds
Authorized capital
50,000 Equity shares of ` 10 each 5,00,000
10,000 Preference shares of ` 100 each 10,00,000
15,00,000
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Accounting For Bonus Issue
Issued, subscribed and paid up
30,000 Equity shares of ` 10 each 3,00,000
5,000, 8%Redeemable Preference shares of ` 100 each 5,00,000
Reserves & Surplus
Securities Premium 6,00,000
General Reserve 6,50,000
Profit & Loss A/c 1,80,000
2,500, 9% Debentures of ` 100 each 2,50,000
Sundry Creditors 1,70,000
26,50,000
Application of funds
Fixed Assets (net) 7,80,000
Investments (market value ` 5,80,000) 4,90,000
Deferred Tax Assets 3,40,000
Sundry Debtors 6,20,000
Cash & Bank balance 2,80,000
Preliminary expenses 1,40,000
26,50,000
In Annual General Meeting held on 20th June, 2009 the company passed the following
resolutions:
(i) To split equity share of ` 10 each into 5 equity shares of ` 2 each from 1st July, 09.
(ii) To redeem 8% preference shares at a premium of 5%.
(iii) 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.
(iv) 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 Debentureholders exercised their option to 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.
© The Institute of Chartered Accountants of India
4.2
Accounting
You are requested to journalize the above transactions including cash transactions and
prepare Balance Sheet as at 30th September, 2009. All working notes should form part of your
answer. (November, 2010)
Answer
Bumbum Limited
Journal Entries
2009 Dr. (`) Cr. (`)
July 1 Equity Share Capital A/c (` 10 each) Dr. 3,00,000
To Equity share capital A/c (` 2 each) 3,00,000
(Being equity share of ` 10 each splitted into 5 equity
shares of ` 2 each)
July 10 Cash & Bank balance A/c Dr. 5,55,000
To Investment A/c 4,90,000
To Profit & Loss A/c 65,000
(Being investment sold out and profit on sale credited to
Profit & Loss A/c)
July 10 8% Redeemable preference share capital A/c Dr. 5,00,000
Premium on redemption of preference share A/c Dr. 25,000
To Preference shareholders A/c 5,25,000
(Being amount payable to preference share holders on
redemption)
July 10 Preference shareholders A/c Dr. 5,25,000
To Cash & bank A/c 5,25,000
(Being amount paid to preference shareholders)
July 10 Securities premium A/c Dr. 5,00,000
To Capital redemption reserve A/c 5,00,000
(Being amount equal to nominal value of preference
shares transferred to Capital Redemption Reserve A/c
on its redemption as per the law)
Aug 1 9% Debentures A/c Dr. 2,50,000
Interest on debentures A/c Dr. 7,500
To Debentureholders A/c 2,57,500
(Being amount payable to debentureholders along with
interest payable)
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Accounting For Bonus Issue
Aug. 1 Debentureholders A/c Dr. 2,57,500
To Cash & bank A/c (1,00,000 + 7,500) 1,07,500
To Equity share capital A/c 30,000
To Securities premium A/c 1,20,000
(Being claims of debenture holders satisfied)
Sept. 5 Securities premium A/c Dr. 1,10,000
To Bonus to shareholders A/c 1,10,000
(Being securities premium capitalized to issue bonus
shares)
Sept. 12 Bonus to shareholders A/c Dr. 1,10,000
To Equity share capital A/c 1,10,000
(Being 55,000 fully paid equity shares of ` 2 each issued
as bonus in ratio of 1 share for every 3 shares held)
Sept. 30 Securities Premium A/c Dr. 25,000
To Premium on redemption of preference shares A/c 25,000
(Being premium on preference shares adjusted from
securities premium account)
Sept. 30 Profit & Loss A/c Dr. 7,500
To Interest on debentures A/c 7,500
(Being interest on debentures transferred to Profit and
Loss Account)
Note: For capitalisation of Bonus shares and transfer to capital redemption reserve
account any other free reserves given in the balance sheet may also be used.
Balance Sheet as at 30th September, 2009
Particulars Notes Rs.
Equity and Liabilities
1 Shareholders' funds
a Share capital 1 4,40,000
b Reserves and Surplus 2 14,72,500
2 Current liabilities
a Trade Payables 1,70,000
Total 20,82,500
© The Institute of Chartered Accountants of India
4.4
Accounting
Assets
1 Non-current assets
a Fixed assets
Tangible assets 7,80,000
2 Current assets
Trade receivables 6,20,000
Cash and cash equivalents 2,02,500
Other current assets 3 4,80,000
Total 20,82,500
Notes to accounts
1 Share Capital
Authorized share capital
2,50,000 Equity shares of ` 2 each 5,00,000
10,000 Preference shares of `100 each 10,00,000 15,00,000
Issued, subscribed and paid up
2,20,000 Equity shares of ` 2 each 4,40,000
2 Reserves and Surplus
Securities Premium 85,000
Capital Redemption Reserve 5,00,000
General Reserve 6,50,000
Profit & Loss A/c (1,80,000 + 65,000 – 7,500) 2,37,500
Total 14,72,500
3. Other current asset
Preliminary expenses 1,40,000
Deferred tax assets (assumed to be current asset) 3,40,000
Total 4,80,000
Working Notes:
`
1. Redemption of preference share:
5,000 Preference shares of ` 100 each 5,00,000
Premium on redemption @ 5% 25,000
Amount Payable 5,25,000
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Accounting For Bonus Issue
2. Redemption of Debentures
2,500 Debentures of ` 100 each 2,50,000
Less: Cash option exercised by 40% holders (1,00,000)
Conversion option exercised by remaining 60% 1,50,000
1,50,000
Equity shares issued on conversion = = 15,000 shares
10
3. Issue of Bonus Shares
Existing equity shares after split (30,000 x 5) 1,50,000 shares
Equity shares issued on conversion 15,000 shares
Equity shares entitled for bonus 1,65,000 shares
Bonus shares (1 share for every 3 shares held) to be issued 55,000 shares
4. Securities Premium A/c
Balance as per balance sheet 6,00,000
Add: Premium on equity shares issued on
conversion of debentures (15,000 x 8) 1,20,000
7,20,000
Less: Capitalization for bonus issue (55,000 x 2) (1,10,000)
Adjustment for premium on preference shares (25,000)
Transfer to capital redemption reserve (5,00,000)
Balance 85,000
5. Cash and Bank Balance
Balance as per balance sheet 2,80,000
Add: Realization on sale of investment 5,55,000
8,35,000
Less: Paid to preference share holders (5,25,000)
Paid to Debentureholders (7,500 + 1,00,000) (1,07,500)
Balance 2,02,500
6. Interest of ` 7,500 paid to debenture holders have been debited to Profit & Loss Account.
EXERCISES
1. The Balance Sheet of A Ltd. as at 31.3.2012 is as follows:
Balance Sheet as at 31.3.2012
Liabilities Rs. Assets Rs.
Authorised Share Capital Sundry Assets 17,00,000
1,50,000 Equity Shares of Rs. 10 each 15,00,000
Issued, Subscribed and Paid-up
80,000 Equity Shares of
Rs. 7.50 each called-up and paid-up 6,00,000
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4.6
Accounting
Reserves and surplus
Capital Redemption Reserve 1,50,000
Plant Revaluation Reserve 20,000
Securities Premium Account 1,50,000
Development Rebate Reserve 2,30,000
Investment Allowance Reserve 2,50,000
General Reserve 3,00,000
17,00,000 17,00,000
The company wanted to issue bonus shares to its share holders at the rate of one share for every two shares held.
Necessary resolutions were passed; requisite legal requirements were complied with:
(a) You are required to give effect to the proposal by passing journal entries in the books of A Ltd.
(b) Show the amended Balance Sheet.
(Hints: Total of Balance Sheet Rs.19,00,000)
2. The following is the Trial Balance of Subhash Limited as on 31.3.2012 :
(Figures in Rs. ‘000)
Debit Rs. Credit Rs.
Land at cost 110 Equity Capital (Shares of Rs. 10 each) 150
Plant & Machinery at cost 385 10% Debentures 100
Debtors 48 General Reserve 65
Stock (31.3.2012) 43 Profit & Loss A/c 36
Bank 10 Securities Premium 20
Adjusted Purchases 160 Sales 350
Factory Expenses 30 Creditors 26
Administration Expenses 15 Provision for Depreciation 86
Selling Expenses 15 Suspense Account 2
Debenture Interest 10
Interim Dividend Paid 9
835 835
Additional Information :
(a) On 31.3.2012, the company issued bonus shares to the shareholders on 1 : 3 basis. No entry relating to this
has yet been made.
(b) The authorised share capital of the company is 25,000 shares of Rs. 10 each.
(c) The company on the advice of independent valuer wish to revalue the land at Rs. 1,80,000.
(d) Proposed final dividend 10%.
(e) Suspense account of Rs. 2,000 represents cash received for the sale of some of the machinery on
1.4.2011. The cost of the machinery was Rs. 5,000 and the accumulated depreciation thereon being Rs.
4,000.
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Accounting For Bonus Issue
(f) Depreciation is to be provided on plant and machinery at 10% on cost.
You are required to prepare Subhash Limited’s Profit & Loss account for the year ended 31.3.2012 and a
balance sheet on that date in vertical form as per the provisions of Schedule VI of the Companies Act, 1956.
Your answer to include detailed notes only for the following:
(1) Share Capital
(2) Reserves & Surplus
(3) Fixed Assets
Ignore previous years’ figures & taxation.
(Hints: Total of Balance Sheet Rs. 500; Net profit before dividend Rs. 83)
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4.8