Chapter: Accounting of Bonus Issue & Right Issue Topic 1: Bonus Issue Practice Questions

Chapter : Accounting Of Bonus Issue & Right Issue
Topic 1: Bonus Issue
Practice Questions
Question 1.
Following items appear in the Trial Balance of ABCD ltd as at 31st March, 2015
1 40,000 equity shares of ₹ 10 each, ₹ 7.50 paid up ₹ 3,00,000

2 Capital redemption Reserve ₹ 30,000
3 Plant Revaluation Reserve ₹ 10,000
4 Securities Premium Account ₹ 35,000
5 General Reserve ₹ 1,00,000
6 Profit and Loss account ₹ 50,000
7 Capital Reserve (including ₹ 25,000 being profit on sale of Machinery) ₹ 75,000
The company decided to convert the partly paid equity shares into fully paid shares by way of bonus.
Required: Pass the necessary journal entries. It is desired that there should be minimum reduction in free
reserves.
Solution:
Journal Entries in the books of ABCD Ltd.

Date Particulars L.F. Dr. Cr.
(₹) (₹)
i) Equity share Final call a/c Dr. 1,00,000
To Equity share capital a/c 1,00,000
(Being the final call of ₹ 2.50 each on 40,000 equity shares to make
them fully paid up)
ii) Capital reserve a/c Dr. 25,000

General reserve a/c 75,000
To Bonus to shareholders a/c 1,00,000
(Being the t/f of ₹ 25,000 from Capital Reserve & 75,000 from
General reserve to make the partly paid up shares fully paid up)
iii) Bonus to shareholders a/c Dr. 1,00,000

To Equity share final call a/c 1,00,000
(Being the amount due on final call adjusted against transfer from
General Reserves to Bonus to Shareholders a/c
Contact - 9228446565 www.konceptca.com info@konceptca.com

Question 2.
Following items appear in the Trial balance of XYZ ltd as at 31st March, 2015
1 40,000 Equity shares of ₹ 10 each ₹ 4,00,000

2 Capital Redemption Reserve ₹ 30,000
5 General reserve ₹ 1,00,000
6 Profit and loss account ₹ 50,000
7 Capital Reserve (including ₹ 25,000 being Profit on sale of Machinery) ₹ 75,000
The company decided to issue bonus shares to its shareholders at the rate of one share for every four
shares held.
Required: Pass the necessary journal entries. It is desired that there should be minimum reduction in
free reserves.
Solution:
Journal Entries in the books of XYZ Ltd.

Date Particulars L.F Dr (₹) Cr(₹)
(i) Capital Reserve A/c Dr. 25,000
Capital Redemption Reserve a/c Dr. 35,000
Securities Premium A/c Dr. 35,000
General Reserve a/c Dr. 10,000
To Bonus to shareholders a/c 10,000
(Being the bonus declared by issuing 1 bonus share for every 4
shares held as per general body’s resolution dated)
ii) Bonus to shareholders a/c Dr. 1,00,000
To equity share capital a/c
(Being the issue of 10,000 shares of ₹ 10 each by way of bonus) 1,00,000
Notes:
i) For issue of Bonus Shares, Plant Revaluation Reserve cannot be utilized.
ii) Capital Reserve realized in cash can be utilized for bonus issue

Question 3.
Following items appear in the Trial Balance of PQR Ltd. AS at 31st March 2015
1 40,000 equity shares of ₹ 10 each, ₹ 7.50 paid up ₹ 3,00,000

2 60, 000 Equity Shares of ₹ 10 each ₹ 6,00,000
3 Capital Redemption Reserve ₹ 1,30,000
6 General Reserve ₹ 1,00,000
7 Profit & Loss Account ₹ 50,000
8 Capital Reserve (Including ₹ 25,000 being profit on Sale of Machinery) ₹ 75,000
The company decided to convert the party paid equity shares into fully paid shares by way of bonus and to
issue fully paid-up Bonus Shares to the holders of fully paid up shares in the same ratio.
Required:
Pass the necessary journal entries, it is desired that there should be minimum reduction in free reserves.
Solution:
Journal Entries in the books of PQR Ltd.
Date Particulars L.F Dr. Cr.
(₹) (₹)
i) Equity Share Final Call A/c Dr. 1,00,000
To Equity share capital A/c 1,00,000
(Being the final call of ₹ 2.50 each on 40,000 equity shares to make them fully
paid up)
ii) Capital Reserve A/c Dr. 25,000
General Reserve A/c Dr. 75,000
To Bonus to Shareholders A/c 1,00,000
(Being the transfer of ₹ 25,000 from Capital Reserve & ₹ 75,000 from General
Reserve to make the partly paid up shares fully paid up)
iii) Bonus to Shareholders A/c Dr. 1,00,000
To Equity Share final call a/c 1,00,000
(Being the amount due on final call adjusted against transfer from transfer
from Capital Reserve & General Reserves to Bonus to Shareholders
iv) Capital Redemption Reserve A/c Dr 1,30,000
Securities Premium A/c Dr 60,000
General Reserve A/c Dr 10,000
To Bonus to Shareholders A/c 2,00,000
(Being the bonus declared by issuing 1 bonus share for every 3 shares held
as per general body’s resolution)
v) Bonus to shareholders a/c Dr. 2,00,000
(Being the issue of 20,000 shares of ₹ 10 each by way of bonus)

Notes :
i. Capital Redemption Reserve and Securities Premium can be utilized to issue fully paid-up Bonus
shares and not for converting partly paid shares into fully paid shares.
ii. Capital Reserve realized in cash can be utilized for bonus issue.
iii. Plant Revaluation Reserve cannot be utilized to issue bonus shares.
iv. Ratio of Bonus declared is ₹ 2.50 for every ₹ 7.50 Paid-up capital i.e 1/3rd or 1 for every 3.
Hence, the amount of Bonus = (60,000 × 1/3) × ₹ 10 = ₹ 2,00,000.
Question 4.
The paid up capital of COJHI Ltd. is ₹ 10,00,000 Consisting of ₹ 60,000 Equity Shares of ₹ 10 each fully paid
up and 50,000 Equity Shares of ₹ 10 each, ₹ 8 per share paid up. It has ₹ 40,000 in Securities premium
Account, ₹ 2,00,000 in Profit and Loss Account (Cr.) ₹ 3,00,000 in General Reserve and ₹ 60,000 in Capital
Redemption Reserve Account. By way of Bonus Dividend the partly paid-up shares are converted into fully
paid-up shares and the holders of fully paid up shares are also allotted fully paid-up Bonus shares in the
same ratio.
Required: Pass Journal Entries showing separately the two types of Bonus issues stated above.
Solution:
Journal Entries in the books of COJHI Ltd.
Date Particulars L.F Dr (₹) Cr (₹)
I. General Reserve A/c Dr. 1,00,000
To Bonus to shareholders A/c 1,00,000
(Being the bonus to Shareholders declared for making partly paid shares
fully paid as per Shareholders Resolution dated…)
II. Share Final Call A/c Dr. 1,00,000
To Equity Share Capital A/c 1,00,000
(Being the final call of t 2 per share due on 50, 000 shares as per Board's
Resolution dated....)
III. Bonus to Shareholders A/c Dr. 1,00,000
To Share final call a/c 1,00,000
(Being the utilisation of Bonus to Shareholders towards payment of the
final call of ₹ 2 per share on 50,000 shares)
IV. Securities Premium a/c Dr. 40,000
Capital Redemption Reserve A/c Dr. 60,000
General reserve a/c Dr. 50,000
To bonus to shareholders a/c 1,50,000
(Being the bonus to shareholders declared for issuing fully paid shares
as per Shareholders Resolution dated)
V. Bonus to Shareholders A/c Dr 1,50,000
(Being the utilisation of Bonus to shareholders towards issue of 15, 000
fully paid shares of t 10 each to be distributed in the ratio of one share
for every four held, as per Board’s resolution dated---)

Notes
a) General Reserve has been utilised for making partly paid shares fully paid, because Securities
Premium A/c or Capital Redemption Reserve A/c cannot be utilised for the purpose.
b) Ratio of Bonus declared is r 2 for every f 8 paid-up capital i.e. 1/4th or 1 for every 4, Hence the
amount of Bonus = (60,000 × 1/4) × ₹ 10 = ₹ 1,50,000.
Question 5.
Following is the extract of the Balance Sheet of CAS Ltd. As at 31st March, 2015
Particulars ₹
Authorised Capital
10,00012% Preference shares of ₹ 10 each 1,00,000
1,00,000 Equity shares of ₹10 each 10,00,000
Issued and Subscribed Capital 11,00,000
8,000 12% Preference shares of ₹ 10 each fully paid 80,000
90,000 Equity shares of ₹ 10 each ₹ 8 paid up 7,20,000
Reserves and Surplus
Capital redemption Reserve 20,000
General Reserve 1,20,000
Capital Reserve 75,000
Securities premium 25,000
Profit and Loss account 1,80,000
Secured Loans
12% Partly convertible Debentures @ ₹ 100 each 5,00,000
On 1st April, 2015 the Company has made final call @ 2 each on 90,000 equity shares. The call money
was received by 20th April, 2015. Thereafter the company decided to capitalize its reserves by way of
bonus at the rate of one share for every four shares held. Securities premium of ₹ 25,000 includes a
premium of ₹ 5,000 shares issued to vendors pursuant to a scheme of amalgamation. Capital reserves
include ₹ 40,000 being profit on sales of plant and machinery. 20% of 12% Debentures are convertible
into equity shares of ₹10 each fully paid on 1st June 2015
Required: Show necessary entries in the books of the Company and prepare the extract of the Balance
Sheet immediately after bonus issue but before conversion of debentures. Are the convertible debenture
holders entitled to bonus shares?

Solution:
Journal Entries in the books of CAS ltd.
Date Particulars L.F. Dr (₹) Cr. (₹)
April 1 Equity share final call a/c Dr. 1,80,000
(Being the final call of ₹ 2 per share on 90,000 equity shares due as per
Board’s Resolution dated..)
April 20 Bank a/c Dr. 1,80,000
(Being the final call money on 90,000 equity shares received)
Capital Redemption Reserve a/c Dr. 20,000
Capital Reserve a/c (Realized in cash) Dr. 40,000
Securities Premium a/c (25,000 – 5,000) Dr. 20,000
General Reserve a/c Dr. 1,20,000
Profit and loss a/c Dr. 25,000
(Being the bonus issue @ one share for every four shares held by utilizing
various reserves as per Boards resolution dated…)
April 20 Bonus to shareholder’s a/c Dr. 2,25,000
An extract of BALANCE SHEET as at 30TH APRIL, 2015 (After Bonus Issue)

Particulars Note No ₹
1. EQUITY AND LIABILTHES
(1) Shareholder’s Funds
(a) Share Capital 1 12,05,000
(b) Reserves and Surplus 2 1,95,000
(2) Non-Current Liabilities
(a) Long term borrowings 3 5,00,000
Total 19,00,000
Notes to Accounts:
Particulars ₹
1. Share Capital
Authorised Share Capital
1,25,000 Equity shares of ₹ 10 each 12,50,000
10,000, 12% Preference shares of ₹ 10 each 1,00,000
13,50,000
Issued, Subscribed and fully paid share capital
1,12,500 Equity shares of ₹ 10 each, fully paid 11,25,000
(Out of the above 22,500 equity shares @ ₹ 10 each were issued by way of bonus)
8,000 12% Preference Shares of ₹ 10 each 80,000
Total 12,05,000
2. Reserves and Surplus

Capital Reserves (75,000 – 40,000) 35,0000
Securities Premium Reserves (25,000 – 20,000) 5,000
Surplus (profit and loss account) (1,80,000 – 25,000) 1,55,000
Total 1,95,000

3. Long term borrowings
Secured
Secured 12% Convertible Debentures @ ₹ 100 each (out of above 1,00,000 5,00,000
Debentures @ ₹ 100 each to be converted into 10,000 Equity shares @ ₹ 10 each on
1st July, 2015)
Total 5,00,000
Working Notes:
(i) Capital Reserve realized in cash can be utilised for issue of fully paid bonus shares.
(ii) As per SEBI guidelines securities premium collected in cash can only be utilized for bonus issue.
(Iii) As per pare (ii) of SEBI guidelines, no company can issue bonus shares to its shareholders without
extending similar benefit to convertible debentures Holders Pending such conversion necessary number of
shares should be earmarked for convertible debentures Holders Therefore, convertible debentures holders
are also entitled to the bonus shares in the same ratio as the equity share Holders
(iv) It is assumed that the company will pass necessary resolution at its general meeting for increasing the
authorized capital by ₹ 2,50,000.
Question 6.
Following is Me Balance Sheet of Happy limited as on March 31, 2015
Balance Sheet As On 31-3-2015

Particulars ₹
Authorised share capital
2,00,000 equity shares of ₹ 10 each 20,00,0000
Issued and Subscribed share capital
2,00,000 Equity shares of ₹ 10 each. ₹ 7 paid up 14,00,000
Reserves and Surplus
Capital reserve (Profit on sale of fixed assets) 1,30,000
Securities Premium (includes ₹ 20,000 received otherwise than in cash) 90,000
General reserve 2,40,000
Profit and loss a/c 5,20,000
Secured loans
12% fully convertible debentures @ ₹ 100 each 4,00,000
Current liabilities 2,20,000
Fixed assets 20,00,000
Investments 4,40,000
Current Assets 5,60,000

On April 01,2015, company has made final call @ ₹ 3 on 2,00,000 equity shares and received Complete
call money by April 30, 2015.
The company wants to issue bonus shares to its shareholders @ one share for every four shares held.
12% Debentures are convertible into equity shares of ₹ 10 each fully paid on June 01, 2015. Necessary
resolutions were passed and requisite legal requirements were complied with. For issue of bonus shares
it was decided that reserves and surplus, other than Profit and Loss Account, should be first capitalized.
Required:
Prepare Balance Sheet as on May 15, 2015, date on which all the formalities related to the issue of bonus
shares completed. For the purpose of preparation of Balance Sheet, assume that, Balance Sheet items as
on March 31, 2015, which are not affected by issue of bonus shares as above, remains unchanged as on
May 15, 2015. Also pass necessary Journal Entries in the books of the company related to issue of bonus
shares, for the period from April 01, 2015 to May 15, 2015.
Solution:
Balance sheet of Happy ltd. as at 15.5.2015

Particulars Note No ₹
(lakhs)
1. Equity and liabilities
1) Shareholder’s Funds
a) Share capital (10 each) 1 25,00,000
b) Reserves and Surplus 2 4,80,000
2) Non-current liabilities (12% Debentures) 4,00,000
3) Current liabilities 2,20,000
Total 36,00,000
II Assets
1) Non-current assets
a) Fixed assets( Tangible Assets) 20,00,000
b) Non-current investments 4,40,000
2) Current Assets (5,60,000 + 6,00,000) 11,60,000
Total 36,00,000
Notes to Accounts:
Particulars ₹ (Lakhs)
1. Share Capital
2,50,000 equity shares of ₹10 each 25,00,000
(Of the above 50,000 shares were issued by way of bonus for consideration otherwise than cash)
2. Reserves and Surplus
Debentures Redemption Reserve
Profit and Loss Account (5,20,000 – 60,000) 4,60,000
Securities Premium 20,000
Total 4,80,000

Journal Entries in the books of Happy Ltd.
Date Particulars Dr. Cr
(₹) (₹)
01.04.2015 Equity share capital a/c Dr. 6,00,000
To Equity Share capital a/c 6,00,000
(Being final call of ₹ 3 per share on 2,00,000 equity shares made)
30.04.2015 Bank a/c Dr. 6,00,000
To Equity share final call a/c 6,00,000
(Being final call money on 2,00,000 equity shares received)
15.05.2015 Capital Reserve a/c Dr. 1,30,000
Securities Premium A/c (90,000 – 20,000) Dr. 70,000
General reserve A/c Dr. 2,40,000
Profit and Loss a/c Dr. 60,000
To bonus to shareholders a/c 5,00,000
(being bonus issue @ one share for every four shares held, by utilizing
various reserves)
15.05.2015 Bonus to shareholder’s a/c Dr. 5,00,000
To equity share capital a/c 5,00,000
(being capitalization of reserves and profits)
Working Notes:
(I) Authorised share capital
Particulars Number of shares

Existing number of authorized share capital 2,00,000
Add: Issue of bonus shares to existing equity shareholders 50,000
Add: Shares required for conversion of debentures 40,000
Add: Bonus shares to be issued to debenture holders after conversion 10,000
Total authorized share capital as on May 15, 2015 should be 3,00,000
(II) As per SEBI guidelines, no company can issue bonus shares to its shareholders without extending
similar benefit to convertible debenture Holders Pending such conversion, necessary number of
shares should be earmarked for convertible debenture Holders Therefore, convertible debenture
holders are also entitled to the bonus shares in the same ratio as the equity shareholders on
conversion.
(III) As per SEBI guidelines, Securities premium collected in cash can only be utilized for bonus issue.

Question 7.
Following items appear in the trial balance of Bharat ltd. (a listed company) as on 31st March, 2015
₹
40,000 equity Shares of ₹ 10 each 4,00,000
Capital Reserve (including 30,000 being profit on sale of machinery) 75,000
Capital Redemption Reserve 25,000

Surplus i.e credit balance of Profit and loss Account 50,000
The company decided to issue to equity shareholders bonus shares at the rate of 1 share for every 4 shares
held and for this purpose, it decided that three should be the minimum reduction in free reserve.
Pass necessary journal entries.
Solution:
Journal Entries in the books of Bharat Ltd.

Particulars Dr. Cr.
(₹) (₹)
Capital Reserve A/c Dr. 30,000
Capital Redemption Reserve A/c Dr. 25,000
General Reserve A/c Dr. 15,000
(Bonus issue of one share for every four shares held by utilizing various
reserves as per Board’s resolution dated----)
Bonus to Shareholder’s A/c 1,00,000
(Capitalisation of profit)
Note: Capital reserve amounting ₹ 30,000 realized in cash can only be used for bonus issue.

Question 8.
Following is the extract of the Balance sheet of Solid ltd. as at 31st March, 2015:
₹
Authorised Capital:
10,000 12% preference shares of ₹ 10 each 1,00,000
11,00,000
Issued and Subscribed capital:
8,000 12% Preference shares of ₹ 10 each fully paid 80,000
90,000 Equity shares of ₹ 10 each, ₹ 8 paid up 7,20,000
Reserves and Surplus:
Revaluation reserve 35,000
Profit and loss account 2,05,000
Secured loan:
12% Debentures @ ₹ 100 each 5,00,000
On 1st April, 2015 the company has made final call @ ₹ 2 each on 90,000 equity shares. The call money was
received by 20th April, 2015. Thereafter the company decided to capitalize its reserves by way of bonus at
the rate of one share for every four shares held. Show necessary entries in the books of the company and
prepare the extract of the Balance Sheet immediately after bonus issue assuming that the company and
prepare the extract of the Balance sheet immediately after bonus issue assuming that the company has
passed necessary resolution at its general body meeting for increasing the authorized capital.
Solution: Solid Ltd.

Journal Entries in the books of SOLID Ltd.
2015 Dr. Cr.
(₹) (₹)
April 1. Equity Share Final call a/c Dr. 1,80,000
(final call of ₹ 2 per share on 90,000 equity shares due as per Board’s
Resolution dated)
April Bank a/c Dr. 1,80,000
20. To equity share final call a/c 1,80,000
(final call money on 90,000 equity shares received)
Profit and loss A/c Dr. 45,000
To Bonus to Shareholder’s A/c 2,25,000
(Bonus issue @ one share for every four shares held by utilizing various
reserves as per Board’s Resolution dated.)
April Bonus to Shareholders a/c Dr. 2,25,000
20. To equity share capital a/c 2,25,000
(Capitalization of profit)

Balance Sheet (Extract) as on 30th April, 2015 (after bonus issue)
Particulars Notes Amount (₹)
Equity and Liabilities
1 Shareholder’s fund
a Share Capital 1 12,05,000
b Reserves and surplus 2 1,95,000
2 Non-current liabilities
a Long-term borrowings 3 5,00,000
Total 19,00,000
Notes to Accounts:
1 Share Capital
Equity share capital
Authorized share capital
Issued, subscribed and fully paid share capital
1,12,500 Equity shares of ₹ 10 each, fully paid
(Out of the Above 22,500 equity shares @ ₹ 10 each were issued by way of bonus)
(A) 11,25,000
Preference share capital
10,000, 12% preference shares of ₹ 10 each 1,00,000
Issued, Subscribed and fully paid share capital 1,12,500 Equity shares of ₹ 10 each,
fully paid
(out of above, 22,500 equity shares @ ₹ 10 each were issued by way of bonus)
(A) 11,25,000
Preference share capital
10,000 12% preference shares of ₹ 10 each 1,00,000
Issued, subscribed and fully paid share capital
8,000 12% Preference shares of ₹ 10 each (B) 80,000
Total (A+B) 12,05,000
2 Reserves and Surplus

Revaluation Reserves 35,000
Less: Utilized for bonus issue (20,000) Nil
Less: Utilized for bonus issue (1,60,000) Nil
Profit and loss Account 2,05,000
Less: Utilised for bonus shares (45,000) 1,60,000
Total 1,95,000
3 Long term borrowings

Secured
12% debentures @ ₹ 100 each 5,00,000

Question 9.
The following is the summarised balance sheet of BumBum Limited as at 31st March, 2015:
₹
Source of funds
Authorized capital 5,00,000
50,000 Equity shares of ₹10 each. 10,00,000
10,000 preference shares of ₹100 each (8% redeemable) 15,00,000
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
Reserve & Surplus
Securities premium 6,00,000
Profit & loss A/c 40,000
2,500, 9% debentures of ₹100 each 2,50,000
Trade payables 1,70,000
25,10,000
Application of funds
Fixed assets (net) 7,80,000
Investments (market value ₹5,80,000) 4,90,000
Deferred tax assets 3,40,000
Trade receivable 6,20,000
Cash & bank balance 2,80,000
25,10,000
In annual general meeting held on 20th June, 2015 the company passed the following resolutions:
(i) To split equity share of ₹10 each into 5 equity share of ₹2 each from 1st July, 5.
(ii) To redeem 8% preference shares at a premium of 5%.
(iii) To redeem 9% debentures by making offer to debentures holders to convert their holdings into equity
shares at ₹10 per share or accept cash or redemption.
(iv) To issue fully paid bonus share in the ratio of one equity share for every 3 shares held on record date.
On 10th July, 2015 Investment were sold for ₹5, 55,000 and preference shares were redeemed.
40% of debentures exercised their option to accept cash and their claims were settled on 1st August, 2015.
The company fixed 5th September, 2015 as record date and bonus issue was concluded by 12 th September,
2015.
You are required to journalize the above transactions including cash transactions and prepare balance sheet
as at 30th September, 2015. All working notes should form part of the answer.

Solution: Journal Entries in the books of Bumbum Limited.
2015 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)
{1,50,000 x 2}
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% redemption 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 shareholders 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 General reserve 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 Dr. 7,500
To debenture holders A/c 2,57,500
(being amount payable to debenture holders along with interest payable)
Aug 1 Debentures holders A/c Dr. 2,57,500
To cash & bank A/c (1,00,000 + 7,500) 1,07,500
To equity shares capital A/c 30,000
To securities premium A/c 1,20,000
(Being claims of debentures holder satisfied)
Sept. 5 Capital Redemption Reserve A/c Dr. 1,10,000
To bonus to shareholders A/c 1,10,000
(being balance in capital redemption reserve 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)

Balance sheet as at 30th September, 2015
Particulars Notes ₹
Equity & liabilities
1. shareholder’s funds
a. Share capital 1 4,40,000
b. Reserve and surplus 2 13,32,500
2. Current liabilities
a. Trade payables 1,70,000
Total 19,42,500
Assets
1. Non -current assets
a. Fixed assets
Tangible assets 7,80,000
b. deferred tax asset 3,40,000
2. Current assets
Trade receivable 6,20,000
Cash and cash equivalents 2,02,500
Total 19,42,500
Notes to Accounts:
1. Share capital ₹ ₹
2,50,000 equity share of ₹2 each 5,00,000
10,000 preference share 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 A/c 6,00,000
Balance as per balance sheet
Add: premium on equity shares issued on conversion of debentures 1,20,000
(15,000 x 8)
7,20,000
Less: Adjustment for premium on preference shares 25,000 6,95,000
Balance 3,90,000
Capital redemption reserve (5,00,000 – 1,10,000) 1,50,000
General reserve (6,50,000 – 5,00,000)
Add: profit on sale of investment 65,000
Less: interest on debentures 7,500 97,500
13,32,500

Working Notes:
₹
1. Redemption of preference share:
5,000 preference share of ₹100 each 5,00,000
Premium on redemption @ 5% 25,000
Amount payable 5,25,000
2. Redemption of debentures:
2,500 debentures of ₹100 each
Less: cash option exercised by 40%holders 2,50,000
Conversion option exercised by remaining 60% 1,00,000
Equity shares issued on conversion = 1,50,000/10 = 15,000 shares 1,50,000
3. Issue of bonus shares
Existing equity shares after split (30,000x5) 1,50,000 shares
Equity shares issued on conversion 15,000 shares

Equity shares entitled for bonus 1,65,000 shares
Bonus share (1share for every 3 shares held) to be issued 55,000 shares
4. 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 debentures holders (7,500+1,00,000) 1,07,500
Balance 2,02,500
5. Balance of ₹7,500 paid to debenture holders have been debited to Profit & loss Account
Question 10.
Following is the extract of the Balance sheet of Preet Ltd as at 31st March, 2015:
Authorised capital : ₹
15,000 12% Preference shares of ₹10 each 1,50,000
1,50,000 Equity shares of ₹10 each 15,00,000
16,50,000
Issued & subscribed capital:
12,000 12% preference shares of ₹10 each 1,20,000
1,35,000 Equity shares of ₹10 each, ₹8 paid up 10,80,000
Reserves and Surplus:
Capital reserve (profit realized on sale of plant) 60,000

On 1st April, 2015, the company has made final call @ ₹2 each on 1, 35,000 equity shares. The call money
was received by 20th April, 2015. Thereafter, the company decided to capitalize its reserve by way of
bonus at the rate of one share for every four shares held. Company decides to use capital reserve for bonus
issue as it has been realized in cash.
Show necessary journal entries in the books of the company and prepare the extract of the balance sheet
as on 30th April, 2015 after bonus issue.
Solution:
Journal Entries in the books of Preet Ltd.

Date Particulars ₹ ₹
1-4-2015
Equity share final call A/c Dr. 2,70,000
(For final calls of ₹2 per share on 1,35,000 equity shares due as per
Board’s Resolution dated)
20-4-2015 Bank A/c Dr. 2,70,000
To Equity share final call A/c 2,70,000
(for final call money on 1,35,000 equity shares received)
Securities premium A/c Dr. 37,500
Capital reserve A/c Dr. 60,000
To bonus to shareholders A/c 3,37,500
(For making provision for bonus issue of one share for every four
shares held)
Bonus to shareholders A/c Dr. 3,37,500
Extract of balance Sheet as at 30th April, 2015 (After bonus issue)

₹
Authorise capital:
15,000 12% Preference shares of ₹10 each 1,50,000
1,83,750 Equity shares of ₹10 each (W.N-2) 18,37,500
Issued and subscribed capital
12,000 12% preference shares of ₹10 each, fully paid 1,20,000
1,68,750 Equity shares of ₹10 each, fully paid 16,87,500
(out of above, 33,750 equity shares @ ₹10 each were issued by way of bonus)
Reserve and surplus

Working Notes:
The authorized capital should be increased as per details given below: ₹
Existing authorized Equity share capital 15, 00,000
Add: Issue of bonus shares to equity shareholders
(25% of ₹13, 50,000) 3, 37,500
18, 37,500
Question 11.
The following is the summarized Balance sheet of trinity Ltd as at 31-3-2014
Liabilities ₹ Assets ₹
Share capital Fixed assets
Authorised Gross block 3,00,000
10,000 10% Redeemable Preference Less: Depreciation 1,00,000
shares of ₹10 each 1,00,000 2,00,000
90,000 Equity shares of ₹10 each 9,00,000
10,00,000 Investments 1,00,000
Issued, Subscribed and paid-up capital Current assets and loans and advances
10,000 10% Redeemable Preference 1,00,000 Inventory 45,000
shares of ₹10 each
10,000 Equity shares of ₹10 each 1,00,000 Trade receivables 25,000
(A) 2,00,000 Cash and bank balances 50,000
Reserve and surplus
(B) 2,08,500
Current liabilities and provisions (C) 11,500
Total A+B+C 4,20,000 4,20,000
For the year ended 31-3-2015, the company made a net profit of ₹35,000 after providing ₹20,000
depreciation.
The following additional information is available with regard to company’s operation:

1. The preference dividend for the year ended 31-3-2015 was paid.
2. Except cash and bank balances other current assets and current liabilities as on 31-3-2015, was the same
as on 31-3-2014.
3. The company redeemed the preference shares at a premium of 10%.
4. The company issued bonus shares in the ratio of one share for every equity share held as on 31-3-2015.
5. To meet the cash requirements of redemption, the company sold investments.
6. Investment was sold at 90% of cost on 31-3-2015.
You are required to prepare necessary journal entries to record redemption and issue of bonus shares.
Solution:
Journal Entries in the books of Trinity Ltd.

Particulars Dr. Cr.
₹ ₹
To premium on redemption of preference shares 10,000
(being amount of premium payable on redemption of preference share)
10% Redemption Preference capital Dr. 1,00,000
Premium on redemption of preference shares Dr. 10,000
To preference shareholders 1,10,000
(being the amount payable to preference shareholders on redemption)
To capital redemption Reserve 1,00,000
(being transfer to the latter account on redemption of shares)
Bank A/c Dr. 90,000
To Investments 1,00,000
(being amount realised on sale of investments and loss thereon adjusted)
Preference Shareholders A/c Dr. 1,10,000
To bank 1,10,000
(being payment made to preference shareholders)
Capital redemption reserve A/c Dr. 1,00,000
To bonus to shareholders 1,00,000
(Amount adjusted for issuing bonus share in the ratio of 1:1)
To Equity share capital 1,00,000
(balance on former account transferred to latter)

Question 12.
The following notes pertain to Brite Ltd.’s Balance Sheet as on 31st March, 2015:
Notes ₹ in lakhs
(1) Share Capital
Authorised:
20 crore shares of ₹ 10 each 20,000
Issued and Subscribed:
10 crore Equity shares of ₹10 each 10,000
2 crore 11% Cumulative Preference Shares of ₹10 each 2,000
Total 12,000
Called and paid up:
10 crore Equity shares of ₹10 each, ₹8 per share called and paid up 8,000
2 crore 11% Cumulative preference shares of ₹10 each, fully called and paid up 2,000
Total 10,000
(2) Reserve and surplus:
Capital reserve (profit on fixed assets realized in cash) 485
Capital redemption reserve 1,000
General reserve 1,040
Surplus i.e. credit balance of profit & loss Account 273
Total 4,798
On 2nd April, 2015, the company made the final call on equity shares @ ₹2 per share. The entire money
was received in the month of April, 2015.
On 1st June 2015, the company decided to issue to Equity shareholders bonus shares at the rate of 2 shares
for every 5 shares held and for this purpose, it decided to utilize the capital reserves to the maximum
possible extent.
Pass Journal entries for all the above mentioned transactions. Also prepare the notes on share capital and
reserves and surplus relevant to the balance sheet of the company immediately after the issue of bonus
shares.
Solution:
Journal Entries in the books of Brite Ltd.

2015 Dr. Cr.
Particulars In ₹ lakhs In ₹ lakhs
April 2 Equity share final call A/c Dr. 2,000
To Equity share capital A/c 2,000
(final call of ₹2 per share on 10 crore equity shares made due)
Bank A/c Dr. 2,000
To equity share final call A/c 2,000

(Final call money on 10 crore equity shares received)
June 1 Capital reserve A/c 485
Capital redemption reserve A/c 1,000
Securities premium A/c 2,000
General Reserve A/c 515
To bonus to shareholders A/c 4,000
(bonus issue of 2 shares for every five shares held, by utilising various
reserves as per board’s resolution dated)
Bonus to shareholders A/c Dr. 4,000
To Equity share capital A/c 4,000
(Capitalisation of profit)
Notes to Accounts:
₹ in lakhs
1. Share capital
20 crore shares of ₹10 each 20,000
Issued, subscribed and fully paid up share capital
14 crore Equity shares of ₹10 each, fully paid up 14,000
(out of the above, 4 crore equity shares @ ₹10 each were issued by way of bonus)
2 crore, 11% cumulative preference share capital of ₹10 each, fully paid up 2,000
Total 16,000
2. Reserve & Surplus

Capital reserves 485
Less: Utilized for bonus issue (485) -
Capital redemption reserve 1,000
Less: Utilized for bonus issue (1,000) -
Less: Utilized for bonus issue (2,000) -
General Reserve 1,040
Less: Utilized for bonus issue (515) 525
Surplus (profit and loss Account) 273
Total 798

Question 13.
Following items appear in the Trail balance of Saral Ltd. as on 31st March, 2014:
Particulars Amount (₹)

4,500 equity shares of ₹100 each 4,50,000
Capital reserve (including ₹40,000 being profit on sale of profit) 90,000
Capital Redemption Reserve 30,000
Profit and loss Account (Cr. Balance) 65,000
The company decided to issue to equity shareholders bonus shares at the rate of 1 share for every 3 shares
held. Company decided that there should be the minimum reduction in free reserves. Pass necessary
Journal Entries in the books Saral Ltd.
Solution:
Journal Entries in the book of Saral Ltd.
Particulars Dr. Cr.
(₹) (₹)
Capital redemption reserve A/c Dr. 30,000
Securities premium A/c Dr. 40,000
Capital reserve (Realized in cash) Dr. 40,000
General reserve A/c Dr. 40,000
To bonus to shareholders 1,50,000
( Being issued of bonus shares by utilization of various reserves, as per
resolution dated)
( Being capitalization of profit)

Question 14.
The Balance Sheet of CANIE Ltd. as at 31.3.2015 as follows:
Liabilities ₹ Assests ₹
Share Capital: Non Current assets 10,00,000
Authorised Current asses 7,00,000
1,50,000 Equity Shares of ₹10 each 15,00,000
Issued and Subscribed :
80,000 equity shares of ₹7.50 each 6,00,000
called-up and paid-up
Reserve & 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
17,00,000 17,00,000
The company wanted to issue bonus shares to its share to its share holders at the rate of one share for
every two share held. Necessary resolutions were passed: Requisite legal requirements were compiled
with:
(a)You are required to give effect to the proposal by passing journal entries in the books of CANIE Ltd.
(b)Show the amended Balance Sheet.
Solution.
Journal
Date Particulars L.F. Dr.(₹) Cr.(₹)
(i) Equity share Final Call A/c Dr. 2,00,000
(Being the Final call of ₹ 2.50 each on 80,000 equity shares to
make them fully paid up)
(ii) General Reserve A/c Dr. 2,00,000

To Bonus to shareholder A/c 2,00,000
(Being the Transfer of ₹2,00,000 from general Reserve to make
the partly paid up)
(iii) Bonus to shareholders A/c Dr. 2,00,000

To Equity share Final Call A/c 2,00,000
(Being the amount due on final call adjusted against transfer from
General Reserves to Bonus to Shareholders A/c)
(iv) General Reserves Dr. 1,00,000

Securities Premium A/c Dr. 1,50,000
Capital Redemption Reserve A/c 1,50,000
To Bonus to Share Holders A/c Dr. 4,00,000

(Being the appropriation made as above to facilitate issues of fully
paid up bonus shares at the rate of the one share for every two
shares held)
(V) Bonus To Share holders A/c Dr. 4,00,000

(Being the issuance of 40,000 fully paid up shares of ₹10 each by
way of bonus)
Notes:
(i) Reserve other than capital Redemption Reserve, Plant Revaluation Reserve and Securities premium
account can be utilized for making the partly paid up shares fully paid up.
(ii) Plant Revaluation Reserve, Can’t be utilized to make the bonus issues.
Balance sheet of CANIE, Ltd. as at 1st April, 2015

Particulars Note No. ₹(In Lacs)
1.equity and Liabilities
(1) Shareholders’ Funds
(a)Share Capital 1 12,00,000
(b)Reserves and Surplus 2 5,00,000
(2) Non Current Liabilities
(3) Current Liabilities
Total 17,00,000
2. Assets
(1) Non-current Assets 10,00,000
(2) Current assets 7,00,000
Total 17,00,000
Notes to Accounts:
Note 1: Share capital

Authorised 15,00,000
1,50,000 Equity Shares of ₹10, each
Issued & Subscribed 12,00,000
1,20,000 Equity Shares of ₹10 each
(of the above 40,000 Shares were issued as bonus shares )
Note 2: Reserves and Surplus

Development Debate Reserve 2,30,000
Investment allowance Reserve 2,50,000
Plant Revaluation Reserve 20,000
5,00,000

Question 15.
Following is the extract from the balance Sheet of M/s Yahoo Ltd. as at 31st March, 2015:
In ₹
Authorised Capital:
50,000, 10% Preference shares of ₹10 each 5,00,000
2,00,000 Equity Shares of ₹10 each 20,00,000
Issued and Subscribed Capital:
40,000; 10% Preference Shares of ₹10 each fully paid 4,00,000
1,80,000 Equity shares of ₹10 each, of which ₹7.50 paid up 13,50,000
Reverse and Surplus:
Capital Reserve 1,50,000
Profit and Loss account 3,00,000
On 1st April the company has made a final call @ ₹2.50 each on 1,80,000 equity shares. The Call Money was
received By 30th April. There after the company decided to capitalize its reserves by issuing bonus shares at
the rate of one share for every three shares held. Securities premium of ₹50,000 includes a premium of ₹
20,000 for shares issues to vendor for purchase of a special machinery. Capital reserve includes ₹60,000
being profit on exchange of plant and machinery.
Required: Show necessary journal entries in the books of the company and prepare the extract of the
Balance sheet after bonus issues. Necessary assumption, if any should form part of your answer.
Solution.
In The Books Of M/s. Yahoo Ltd.

Journal of M/s. Yahoo. Ltd.
Date Particulars Dr. Cr.
1.4.2015 Equity Share Final Call A/c Dr. 4,50,000
(Being the final call of ₹2.50 per share on 1,80,000 equity share made)
30.4.2015 Bank A/c 4,50,000
To Equity Share Final Call A/c 4,50,000
(Being Final call money on 1,80,000 shares received)
30.4.2015 Securities premium A/c (50,000-20,000) Dr. 30,000
Capital Reserve A/c (1,50,000-60,000) Dr. 90,000
Profit and Loss A/c Dr. 2,40,000
To Bonus To share holders A/c 6,00,000
(Being utilization of reserves for bonus issues of one share for every
three shares held)
30.4.2015 Bonus to Equity shareholders /c Dr. 6,00,000
ToEquity Share capital A/c 6,00,000
(Being bonus shares issued)

An Extract of Balance Sheet (after Bonus Issue)
Equity & Liabilities ₹ in ‘000
Share Holders Funds
Share Capital 28,00,000
Reserves & Surplus 1,40,000
Note: 1 Authorised Capital:

50,000, 10% preference shares of ₹ 10each 5,00,000
2,40,000, Equity shares of ₹ 10 each (refer W.N.) 24,00,000
Issued and subscribed capital:
40,000, 10% Preference shares of ₹10 each fully paid
2,40,000, Equity shares of ₹ 10 each fully paid
(out of the above, 60,000 equity shares of ₹ 10 each have been issued by the way of bonus)
Note 2: Reserves and Surplus :

Capital Reserve 60,000
Profit and Loss A/c (3,00,000-2,40,000) 60,000
Assumption:
1. As per SEBI Guidelines, Capital Reserve and Securities Premium collected in cash only can be
utilized for the purpose of issue of bonus shares. It is assumed that balance of capital Reserve and
Securities Premium is collected in cash only.
2. It is also assumed that the necessary revolutions have been passed and requisite legal
requirements related to the issue of bonus shares have been complied with before issues of bonus
shares.
Working Note:
On the basis of the above assumptions, the authorized Capital should be increased as under:
Required for bonus issues ₹6,00,000

Less: Balance of authorized Equity share capital (available) (₹2,00,000)
Authorised Capital to be increased ₹4,00,000
Total Authorised equity share Capital after bonus issues (₹20,00,000+₹4,00,000) = ₹24,00,000

Chapter: Accounting of Bonus Issue & Right Issue Topic 1: Bonus Issue Practice Questions

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Chapter: Accounting of Bonus Issue & Right Issue Topic 1: Bonus Issue Practice Questions

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Chapter : Accounting Of Bonus Issue & Right Issue

Topic 1: Bonus Issue

1 40,000 equity shares of ₹ 10 each, ₹ 7.50 paid up ₹ 3,00,000

Journal Entries in the books of ABCD Ltd.

ii) Capital reserve a/c Dr. 25,000

iii) Bonus to shareholders a/c Dr. 1,00,000

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1 40,000 Equity shares of ₹ 10 each ₹ 4,00,000

Journal Entries in the books of XYZ Ltd.

i) For issue of Bonus Shares, Plant Revaluation Reserve cannot be utilized.

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1 40,000 equity shares of ₹ 10 each, ₹ 7.50 paid up ₹ 3,00,000

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Hence, the amount of Bonus = (60,000 × 1/3) × ₹ 10 = ₹ 2,00,000.

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An extract of BALANCE SHEET as at 30TH APRIL, 2015 (After Bonus Issue)

2. Reserves and Surplus

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Following is Me Balance Sheet of Happy limited as on March 31, 2015

Balance Sheet As On 31-3-2015

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Balance sheet of Happy ltd. as at 15.5.2015

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(I) Authorised share capital

Particulars Number of shares

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Capital Redemption Reserve 25,000

Pass necessary journal entries.

Journal Entries in the books of Bharat Ltd.

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Solution: Solid Ltd.

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2 Reserves and Surplus

3 Long term borrowings

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(ii) To redeem 8% preference shares at a premium of 5%.

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2015 Dr. (₹) Cr.(₹)

July 10 Cash & bank balance A/c Dr. 5,55,000

July 10 8% redemption preference share capital A/c Dr. 5,00,000

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Equity shares issued on conversion 15,000 shares

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Journal Entries in the books of Preet Ltd.

Extract of balance Sheet as at 30th April, 2015 (After bonus issue)

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The authorized capital should be increased as per details given below: ₹

Existing authorized Equity share capital 15, 00,000

Add: Issue of bonus shares to equity shareholders

(25% of ₹13, 50,000) 3, 37,500

The following is the summarized Balance sheet of trinity Ltd as at 31-3-2014

The following additional information is available with regard to company’s operation:

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3. The company redeemed the preference shares at a premium of 10%.

5. To meet the cash requirements of redemption, the company sold investments.

6. Investment was sold at 90% of cost on 31-3-2015.

Journal Entries in the books of Trinity Ltd.

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Journal Entries in the books of Brite Ltd.

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