Bonus share issue accounting entries

In this article, we will discuss about the major type of Bonus Share issue accounting entries. On the other hand, we will also discuss about accounting entries of Bonus shares.

Bonus Share: Bonus shares refers to those shares, which are issued by the company in a certain proportion for the existing shareholders. Company issues additional shares for their shareholders. When shareholders receive one bonus share with four old shares, we can say that the company issues their bonus share into 4:1 ratio. For example: If a shareholder holds 100 shares in the bonus offer ratio of 2:1, he will get 200 shares free. This means, he will get a total number of 300 shares in his company instead of 100. Bonus shares are also known as Scrap Issue and Capitalization Issue.

Bonus shares are issued by the company from its reserve. This processing is called as Capitalization of reserves as they issue their shares by reserves and transfer money into company’s equity capital. Company reserve is deducted by this amount and Equity share capital is added by this amount.

The reserves which are used for the issuing of bonus shares are as follows:

1. General reserve

2. Free reserve

3. Revenue reserve

4. Capital reserve

5. Debenture Redemption Reserve only after redemption

6. Capital redemption reserve

7. Development rebate reserve

8. Security premium or share premium if received in cash

9. Sinking fund

10. Allowance after expiry of 8 years.

Well, after discussing about the meaning of this major term, let us explain about the accounting treatment of bonus share.

Here, we mention two cases where the bonus share entries are treated differently.

1. In the first case, the entry when new Bonus Shares are issued, are as follows:

(a) Entry for providing amount of Bonus:

Capital Redemption Reserve Account, or                         Dr

Security Premium Account, or                                              Dr.

General Reserve Account, or                                                  Dr.

Capital Reserve Account, or                                                   Dr.

Free Reserve Account, or                                                        Dr.

Profit and Loss Account                                                           Dr.

To Bonus to Shareholder Account

(b) Entry for issuing of Bonus share:

Bonus to Equity Shareholder Account                                Dr.

To Equity Share Capital Account

2. In the Second Case, when the Partly Paid up shares are converted into Fully Paid up shares through Bonus Share, for providing the amount of bonus out of reserve, then the following entry will be passed:

Capital Redemption Reserve Account, or                         Dr

Security Premium Account, or                                              Dr.

General Reserve Account, or                                                  Dr.

Capital Reserve Account, or                                                   Dr.

Free Reserve Account, or                                                        Dr.

Profit and Loss Account                                                           Dr.

To Bonus to Shareholder Account

Entry for Unpaid amount of Existing Shares (i.e, Final Call amount)

Final Call Account                                                                      Dr.

To Share Capital Account

Entry for adjustment of Final Call amount out of profit

Shareholder’s Bonus shares Account                               Dr.

 To Final Call Account

Post Author: fn007

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