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What do you mean by issue …

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What do you mean by issue of bonus shares and how is it treated in the financial statements of the company?

Posted by Ravindra R M 6 years, 10 months ago

CBSE > Class 12 > Accountancy

1 answers

Gaurav Seth 6 years, 10 months ago

Bonus shares are shares issued to shareholders of a company free of any cost.

From an accounting perspective, a bonus issue is a simple reclassification of reserves which causes an increase in the share capital of the company on the one hand and an equal decrease in other reserves. The total equity of the company therefore remains the same although its composition is changed.

Following journal entries are required to account for a bonus issue:

Debit	Undistributed Profit Reserves / Share Premium Reserve / or Other reserves	<i>Number of bonus shares × nominal value of 1 share</i>
Credit	Share Capital Account	<i>Number of bonus shares × nominal value of 1 share</i>

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