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bonus issue

27 March 2019

when the company issue the bonus share to shareholders what is the effect to capital..?
Question is company Authorized capital will increase or subscribed capital.?? pls explain me with a small example..
thank you..

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2 Replies

Giridhar S Karandikar (Team Lead) (7543 Points)
Replied 27 March 2019

if after issue of bonus shares it is shown that the authorized capital us falling Short of issue if bonus shares then first a SR us required to be passed to increase the authorized share xapiu.after that bonus issue can be made.
after issue of bonus issue the share capital stands to increase as additional shares are issued to existing shareholders which us done by capitalization if accumulated profits and free reserves

Chirag (Professional) (1979 Points)
Replied 27 March 2019

Bonus issue is nothing while just capitalisation of Accumulated profits and reserves, It's a type of corporate restructuring mechanism and used to bring down the Market Price of Shares.... Consider an example, A Ltd. Have total Authorised capital of 10Lacs ,Divided into 1,00,000 equity shares of Rs.10FACE VALUE, Current market price of such shares are /trading on stock exchange at Rs.100/- Co have total paid up equity of 60,000 shares.. & Reserves and surpluses stood at 4Lacs.. After passing necessary resolution at the Price of Rs.100 company decided to issue bonus shares ( @ 15:1) IE .one bonus share on each 15 shares held..

Now understand situation what happens to net worth -
before Issue -Capital (6 Lacs) +R&S (4 Lacs)
after issue - Capital (10 Lacs)

Book value per share -
before issue - 10lacs/no of shares(60k) =Rs.17/-
after issue - 10 lacs/no of shares (100k) = Rs.10/

In case of listed entity more shares shall be available and Market price will also bring down to some extent.

Apart from it, Capital consist of
Issued capital - Like at the time of ipo company offers 10,000 equity shares.

subscribed capital - How much shares are actually taken by prospective investor by application money

paid up equity - Fully paid up shares and no amount is due.

in case of Bonus issue company's paid up capital will increase... because shares are issued at zero cost to investors

However in above example if R&S are say, 80 Lacs and company would like to capitalise 50Lacs then first thing to increase authorised capital? as its only 10 Lacs...

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