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The Oxford English Dictionary gives the meaning of bonus shares as; “an extra dividend
paid to share holders in a joint stock company from surplus profits”. In legal context, a
bonus share is not a dividend. The guidelines issued by the ministry of Finance prohibit
declaration of bonus shares in lieu of dividends. Bonus shares may be issued in addition
to dividends. In bonus issue, shares are issued to existing shareholders as a gift i.e
without charging any payment.
STOCK SPLIT-UPS:
Stock split-ups involves reduction of the par value of the stock which leads to merely
increase in the number of outstanding shares. There is no change in the total stated value
of the stock or in the surplus. It has no effect on the shareholders equity.
(c) To provide a broader and stable market for the company’s shares.
(e) To please the shareholder, since split-ups are taken as an indicator of the financial
success of a corporation.
The Effect Of Stock Split On The Balance Sheeet
i) Before the stock split Rs
Equity Share Capital(10,000 shares of Rs.100 each fully paid) 10,00,000
General Reserve 15,00,000
Total 25,00,000
In the above case, each share of the face value of Rs.100 were split-up into 10shares of
Rs.10 each. The result of the stock split is the increase in the number of outstanding
shares with no corresponding change in the total equity capital.
CONSOLIDATION OF SHARES
Consolidation of shares involves increasing of the par value of the stock which leads to
merely decrease in the number of outstanding shares. There is no change in the total
stated value of the stock or in the Surplus. It has no effect on the shareholders equity.
In the above case, the 1,00,000 shares of the face value of rs.10 each were consolidated
into 10,000 shares of Rs. 100 each. The result of the consolidation is the decrease in the
number of outstanding shares with no corresponding change in the total equity capital.
Stock –split is issue of shares of smaller denomination in place of shares of large
denomination. Number of shares goes up. Share Capital is not affected. Consolidation of
shares is converting shares of smaller denomination into those of a larger Denomination.
number of shares comes down. Share Capital is not affected.
The Effect of Bonus Issue on The Equity Portion of The Balance Sheet
i) Equity Portion Before The Bonus Issue Amount(Rs)
30,00,000
Equity share capital (30,000 shares of Rs.100 each)
7,50,000
Securities Premium
62,50,000
Retained Earnings
The result from the issue of bonus shares is the increase in the number of shares
outstanding. In the equity portion of the firm, a bonus issue reduces the retained earnings
and correspondingly increases paid-up equity share capital.
Bonus
Reserves
Call
Bonus
Reserves
Submitted By:
Sonali Patil
Sonam Patil
Tata Steel had last offered bonus shares in 1987-1988 in the ratio of 2:5. According to a
senior company official, steel industry had faced tough times in the recent past. But in the
last two years, the industry as well as Tata Steel had benefited from the upturn in steel
prices. Improved profitability resulting in better cash flows prompted the company to
offer a bonus share issue.
Tata Consultancy Services Ltd on Friday said its shareholders have approved the issue of
bonus shares worth up to Rs 48.93 crore to be paid in the ratio of 1:1.