Bonus Share issue Journal Entry

Capitalisation of Undistributed Profits and tax avoidance through bonus share – Bonus Share issue Journal Entry.

In this article, we will tell you about the Journal entry of bonus shares in books of accounts but first of all, lets have a look at the meaning of bonus shares:

Bonus Share: When a company decides to divide their profit in terms of share instead of dividend or cash among shareholder, these shares are called Bonus Shares. We can also say that payment of dividend in terms of Shares is called a Bonus Share. The two reasons behind issuing bonus shares are : first one  –  tax avoidance and Second  – they want to increase their share capital. For the Share capital reason, it could be denoted by “Capitalisation of Undistributed Profits”.Here we are giving full details of accounting treatment for Bonus Issue through :  step by step and in terms of two cases .

Bonus Share issue Journal Entry
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1st Case:
In this case, when a company provides bonus issue for converting their partly paid up shares into fully paid shares and for providing the bonus issue amount from company reserves, the following entry must be followed:

General Reserve A/c Dr. xxxxxx
Free Reserve A/c Dr. xxxxxx
Capital Reserve A/c Dr. xxxxxx
Revenue Reserve A/c Dr. xxxxxx
Dividend Equalization Fund Account Dr. xxxxxx
Profit and Loss A/c Dr. xxxxxx
To Bonus to Equity Shareholders account xxxxxx

(Being Bonus declared for making fully paid up shares)

Entry for the amount due on final call of shares amount:

Final Call share A/c Dr. xxxxx
To Share capital A/c xxxxx
(Being the Final call made due)

Entry for adjustment of final call amount out of company’s profit:

Bonus to Shareholder A/c Dr. xxxxx
To Final call share A/c xxxxx
(Being shares made fully paid up at Rs. xxxxx)

2nd Case:
In the 2nd case, when new bonus shares are issued to shareholders out of company reserves, the following entry should be passed:

Entry for providing amount of Bonus:
General Reserve A/c Dr. xxxxxx
Capital Reserve A/c Dr. xxxxxx
Capital Redemption Reserve A/c Dr. xxxxxx
Share Premium A/c Dr. xxxxx
Profit and Loss A/c Dr xxxxxx
To Bonus to shareholder A/c xxxxx
(Being the bonus declared for fully paid shares)

Entry for issuing of Bonus Shares:

Bonus to Equity Shareholder A/c Dr. xxxxxx
To Equity share capital A/c xxxxxx
(Being the bonus shares to be issued)

Reference:

Post Author: fn007

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