Accounting treatment of bonus shares received by a company

Originally posted by : Jayapalan Nair.L
	Sir, How we will record (accounting entry) while receiving bonus shares? We are getting it without any cost. So why we cannot treat it as a GAIN/Income? Why not possible to pass this entry; Debit: Investment (face value of bonus shares received) Credit: Income /gain from Investment Please give your valuable explanation regarding this accounting treatment.

Hi Jayapalan,

Receiver of the Bonus share does not post any entry at the time of receiving such shares. There is only increase in number of shares hold by you and not in your Investment.

Coming to second point: the entry passed by you is wrong for following reasons :

Investment amount cannot be increased by debiting the investment account as you have not made any investment at the time of receiving of shares. You have received the shares for free of cost and the nominal value of the shares received has not been invested by you.

Income from Bonus share is realised only when you sale an investment. At the time of receiving of bonus shares there is no profit to you in real terms. Profit may be on virtual terms. Anticipated profits cannot be recognised in books of account.

Please get back if you have any further queries.

 

Sir, suppose investor receives cheque for the fraction shares along with bonus shares, then what will be the journal for the cash received?

Dear respondent, Can you please explain below areas regarding bonus share receipt? Now it is clear that no entry is posted at the time of bonus share receipt. But after that should we identify the fair value changes into the financial statements? Also, what should be the accounting treatment at the year end? Also, is this explained in an accounting standard? Eagerly waiting for an answer. Thanks a lot.