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Accounting for Companies-I

Notes (v) Sinking fund account
(vi) Capital redemption reserves
(vii) Share premium

Accounting Treatment

The following general entries are recorded regarding the issue of bonus shares:
(i) When bonus is declared from accumulated profits:

Profit and Loss Account Dr.
General Reserve Account Dr. As the case may be
Share Premium Account Dr.
Capital Redemption Reserve A/c Dr.

To bonus to shareholders account
(ii) When bonus shares are issued
Bonus to Shareholders Account Dr.
To Share Capital Account

(iii) If bonus shares are issued at premium:
Bonus to Shareholders Account Dr.
To Share Capital Account
To Share Premium Account

(iv) If the bonus shares are issued to make up the existing partly paid up shares as fully paid:
(a) On due
Share Call Account Dr.
To Share Capital Account

(b) When bonus is adjusted in call
Bonus to Shareholder Account Dr.
To Share Call Account
Note:

Bonus shares cannot be issued unless the partly paid up share are made fully paid up.
Bonus shares are issued to the existing shareholders on a pro-rata basis.
Bonus shares are distributed free of charge.

Example 7: (Issue of Bonus Shares Out of Capital Redemption Reserve, Premium and
General Reserve)

On 31st March 2006 the balance sheet of Kavita Limited stood as follows:

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