Asked by: Makhan Hudabirdin
business and finance mergers and acquisitions

What are the sources of bonus issue?

Last Updated: 12th May, 2020

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Source of bonus shares
  • Profit and loss account.
  • general reserve.
  • revenue reserve.
  • free reserves.
  • dividend equalization fund.
  • capital reserve.
  • sinking fund.
  • debenture redemption reserve only after redemption.

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Similarly, it is asked, how does bonus issue work?

A bonus issue is a stock dividend, allotted by the company to reward the shareholders. The bonus shares are issued out of the reserves shares of the company. By issuing bonus shares, the number of outstanding shares increases, but the value of each share reduces .

Also Know, what is the benefit of bonus issue? Advantages of Bonus Shares from Company's Point of View Increasing the number of outstanding shares through a bonus issue increases the participation of smaller investors in the company's shares and hence enhances the liquidity of the stock.

Additionally, how is bonus share issued?

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).

What do you mean by bonus share what are the various sources from which these are issued?

Source of Bonus Issue: Fully paid-up bonus shares can be issued out of following sources: (i) Capital redemption reserve. (ii) Security premium** (realised in cash) (iii) Capital reserve* (realised in cash) (iv) Profit and loss account.

Related Question Answers

Sandu Aristia

Professional

How is bonus calculated?

If the salary of an employee is less than Rs. 7,000, then the bonus is to be calculated on the actual amount. An employee has to have worked for at least 30 days in that company. According to the Bonus Act, a minimum of 8.33% up to 20% of his basic (earned) wages is to be paid to the employee.

Dharma Gobernado

Professional

Does face value change on bonus issue?

Difference between Bonus Issue and Stock Split:
In both the actions the fundamentals of the company the same and only reserves capital and face value are affected. In bonus the face value remains the same but in split issue, the number of shares get double and price is adjusted.

Vertie Creuzburg

Professional

What do you mean by bonus?

A bonus is extra money that an employee receives on top of his or her wages or salary. The person may receive the extra payment for good performance. Sometimes, all employees in a company receive extra money at a certain time of the year. For example, if they get an extra payment at Christmas, it is a Christmas bonus.

Jiajun Barabashev

Explainer

What is the difference between bonus issue and right issue?

Key Differences Between Right Issue vs Bonus Issue
Rights shares are offered to the existing shareholders by the company for raising additional capital from the market. Rights shares are offered at a discounted price compared to the market price. Bonus shares are issued to the shareholders free of cost.

Tsvetanka Uhart

Explainer

Can I sell bonus shares?

The investor can sell shares before the bonus date and pay LTCG tax and buy the shares from the market once the bonus issue is over. But if s/he holds on to the stock, s/he will need to pay a higher tax. Don't rush to sell the shares of a company in your portfolio if it announces a bonus.

Jenyfer Learreta

Explainer

Does share price fall after rights issue?

A rights issue is one way for a cash-strapped company to raise capital often to pay down debt. Shareholders can buy new shares at a discount for a certain period. With a rights issue, because more shares are issued to the market, the stock price is diluted and will likely go down.

Helia Stumpfl

Pundit

Why do companies issue bonus shares?

Companies issue bonus shares to encourage retail participation, especially when the price per share of a company is very high and it becomes tough for new investors to buy shares. By issuing bonus shares, the number of outstanding shares increases, but the value of each share reduces.

Costin Lebin

Pundit

Which company gives maximum bonus?

The number of companies from the Nifty50 index rewarding bonus shares to their shareholders is the highest in past 11 years.

5 Nifty companies announce bonus shares in 2017; highest in 11 years.
ICICI Bank
Date 04/05/2017
20/06/2017
Ratio 1
10

Placidia Koma

Pundit

Which company is issuing bonus shares?

BONUS ISSUES
Company Name Proportion Ex-Bonus Date
Sumit Woods 1:1 16-Jul-2019
Prithvi Exchange (I) 1:2 11-Jul-2019
GAIL India 1:1 09-Jul-2019
SIRCA Paints India 1:2 09-Jul-2019

Shirlene Grajales

Pundit

What are the types of shares?

Most classes of share will fall into one of the below categories of types of share:
  1. 1 Ordinary shares. These carry no special rights or restrictions.
  2. 2 Deferred ordinary shares.
  3. 3 Non-voting ordinary shares.
  4. 4 Redeemable shares.
  5. 5 Preference shares.
  6. 6 Cumulative preference shares.
  7. 7 Redeemable preference shares.

Zhaira Ladyzhensky

Pundit

What do you mean by bonus share?

Definition: Bonus shares are additional shares given to the current shareholders without any additional cost, based upon the number of shares that a shareholder owns. These are company's accumulated earnings which are not given out in the form of dividends, but are converted into free shares.

Lottie Aloy

Teacher

Can a shareholder refuse to accept bonus shares?

Once a resolution for the bonus issue has been approved by the general body of shareholders, a shareholder cannot refuse to accept the bonus shares. This flows from principles of corporate democracy, under which as a general rule, the majority decision of the shareholders binds the minority.

Niang Lose

Teacher

How does bonus issue affect balance sheet?

Bonus shares are a form of rewards given by Company to its shareholders. So after issuing bonus shares, Company's share capital increases and reserves & surplus decreases. After issuing bonus shares there is no impact on Assets or Liabilities either, but there is mutual transaction between shareholders equity.

Maciej Ormazabal

Teacher

Are bonus shares taxable?

Capital Gains Tax on Sale of Bonus Shares. Bonus Shares are shares which are allotted for free to the shareholders and the shareholders don't have to pay anything for purchasing these shares. Bonus Shares are usually issued in proportions. This can be explained with the help of the following example.

Sigrid Agosto

Teacher

How do you read a bonus ratio?

If the ratio is 2:1 ratio, the existing shareholders get 2 additional shares for every 1 share they hold at no additional cost. So if a shareholder owns 100 shares then he will be issued an additional 200 shares, so his total holding will become 300 shares.

Lotfi Lenne

Reviewer

What do you mean by Authorised capital?

The authorized capital of a company (sometimes referred to as the authorized share capital, registered capital or nominal capital, particularly in the United States) is the maximum amount of share capital that the company is authorized by its constitutional documents to issue (allocate) to shareholders.

Hamid Boje

Reviewer

Are bonus shares beneficial?

While a bonus share issue helps a firm capitalise its reserves, it's beneficial to shareholders too. Bonus shares are additional shares issued by a company to its existing shareholders for free, based on a ratio of the shares already owned by them. Note that the undistributed profit belongs to the existing shareholders

Alfaro Ferreo

Reviewer

How does a rights issue work?

Rights issue. A rights issue or rights offer is a dividend of subscription rights to buy additional securities in a company made to the company's existing security holders. When the rights are for equity securities, such as shares, in a public company, it is a non-dilutive(can be dilutive) pro rata way to raise capital

Titu Saitiev

Reviewer

Who is eligible for bonus shares?

Who is eligible for bonus shares? Shareholders who own shares of the company prior to the record date and the ex-date set by the company are eligible for bonus shares. India follows the T+2 rolling system for the delivery of shares, wherein the ex-date is two days ahead of the record date.