Question 42 of 44
Q.Write short notes on the following:
Bonus shares
Maharashtra MsbshseMaharashtra HSC (MSBSHSE) Board 2020Subjective· 4mImportance★★★★★
95% · 42/44 Questions
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Start your 14-day free trial to unlock the full solution →Bonus shares are free additional shares given to existing equity shareholders out of the company's reserves and profits.
When a company has built up large accumulated profits and free reserves, it may decide to convert a part of them into share capital instead of paying cash dividend. It does this by issuing bonus shares, which are given free of charge to the existing equity shareholders in a fixed ratio to the shares they already hold, for example one bonus share for every two shares held.
Key points about bonus shares:
- They are issued only to existing equity shareholders, in proportion to their current holding.
- They are fully paid and completely free; the shareholder pays nothing.
- They are issued by capitalising accumulated profits and reserves.
- No fresh cash comes into the company, since only internal reserves are converted into capital. …
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