08-27-2007, 05:23 AM
A bonus issue is Actually done via retained earnings bonus issue is just a shifting of retained profits to share capital this is known as capitalization of reserves.
<b>
ENTRY-
DRRetained Earnings XXXX
CR Share Capital XXXX
</b>
SEE EXAMPLE-
If a Company has
<b>
Ordinary Share Capital of £10M and number of Shares also 10M
Capital Reserves of £20M
General Reserves of £10M</b>
Total Shareholders' fund is £40M
Now if a company issues one for one bonus issue then after the bonus issue impact on the shareholders funds are as follows
<b>
Ordinary share capital (20m no of shares) £10m +£10m =£20m
Capital Reserve £20m-£10m ===> £10m(See Below Entry)
General Reserve==============> £10m</b>
Still After Bonus Issue Shareholder's Total Fund if £40M...
ENTRY-
<b>
DRCapital Reserves £10M
CR Share Capital £10M</b>
In the end there is no change in Shareholder's Equity because One Account named as Share Capital with the nature Capital Increases and at the same time Other Account named as Capital Reserves with the nature Capital Decreases....
<b>
ENTRY-
DRRetained Earnings XXXX
CR Share Capital XXXX
</b>
SEE EXAMPLE-
If a Company has
<b>
Ordinary Share Capital of £10M and number of Shares also 10M
Capital Reserves of £20M
General Reserves of £10M</b>
Total Shareholders' fund is £40M
Now if a company issues one for one bonus issue then after the bonus issue impact on the shareholders funds are as follows
<b>
Ordinary share capital (20m no of shares) £10m +£10m =£20m
Capital Reserve £20m-£10m ===> £10m(See Below Entry)
General Reserve==============> £10m</b>
Still After Bonus Issue Shareholder's Total Fund if £40M...
ENTRY-
<b>
DRCapital Reserves £10M
CR Share Capital £10M</b>
In the end there is no change in Shareholder's Equity because One Account named as Share Capital with the nature Capital Increases and at the same time Other Account named as Capital Reserves with the nature Capital Decreases....
