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Treatment of Bonus Units
03-02-2009, 03:46 AM
Post: #1
Treatment of Bonus Units
Dear Kamran Bhai, Asalam-o-Alaikum!!
My name is Muhammad Rafay and I am new to this forum, but in a short time I read many posts in which you guide people on many different issues very appropriately, and so I learn a lot here. Thanks

I am CMA qualified from ICMAP (secured 1st position in final stage in Pakistan and also achieved Certificate of Merit in the Paper of SFM) but honestly when I see your knowledge I see my self nothing…but I take it positively I have decided to get more knowledge from Books, Circulars, and of course from you.

I have 2 questions here

Question 1
I have faced this issue in many organizations, as I am working as audit trainee, that the Bonus Units received from Mutual Funds which have classified as AFS will add nothing in the value as per TR-15, and just add the no of units, while at year and when they valued the surplus amount record as Surplus on Revaluation on AFS as per IAS 32/39. But some organizations record this surplus in Profit and Loss account and give the reason that while filling for the Asset Management companies provide them the option to choose cash dividend or bonus units, so as it is on their discretion and if they select the bonus units option once then the Asset Management company will give the bonus units for the year so they can record it as profit in PnL. But I see no logic in it as the profit is not realized unless they sell the units.

What is your suggestion?

Question 2
This question is regarding my career, as I have completed my CMA and some of my colleges told me to do CMA from CIMA but it seems duplication of same certification. I need here your suggestion that will it beneficial to me to do CA from ICAP as I have exemption upto Module D, but for this I have to be registered with any Audit firm (Currently I am not Registered Trainee) for 3 years and as I also want to support my family so money is a issue as stipend is not so attractive. The second option is to do ACCA as I can get 7 papers exemptions in it and go to gulf side to complete my articles and after ACCA, I can complete CA from ICAEW as 2 papers remaining only after ACCA.

What is your recommendation?

Kind Regards,

Muhammad Rafay
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03-02-2009, 06:18 PM
Post: #2
Dear Rafay,

It's nice to have people like you on this forum. The answer to your queries follows.


Companies/mutual funds issue their ordinary shares/units and the owners of such stake are supposed to own whatever accumulated profits, reserves (free or otherwise) such companies/Mutual Funds have in their equity based capital structure. Normally, in case of mutual funds there is only one reserve i.e. accumulated profit.

The percentage of shares/units owned by the stakeholders represents their share in all equity components. This makes it logical that any inter-head transfer from one reserve to other or from a reserve to share capital (off course in same ratio to all stakeholders) will not change the net assets (equity) they own. The company/fund issuing such bonus does not increase its net worth by doing this since it is merely an inter-head transfer. That's why in recipient's context it is concluded that such bonus shares/units do not increase the worth he owns.

It may be noted that TR-15 (although reformatted in 2004) was issued under the influence of IAS-25 (now repealed){REQUIRING VALUATION OF INVESTMENTS ON COST OR MARKET VALUE WHICHEVER IS LOWER} and until now, to my understanding it does not take into account the requirements of IAS-39 which stipulates to account for such financial assets at fair value at the outset and take the gain or loss to equity or P/L account as may be specified for a given category of financial instruments.

IAS-39 (revised 2003) was probably adopted and implemented in Pakistan for the accounting years beginning from January 2005 i.e. after the reformatting of TR-15. In view of this I understand that there may be a need to reconsider this TR or issue some opinion to clarify the matter.

The entities on which IAS 39 is applicable (certainly it has been made applicable to mutual funds by SECP number of years ago) should follow IAS-39 strictly. It means such entities may have to categorize such investment as "available for sale" or "through profit or loss" and on receiving of such bonus units/shares should account for them on fair value at the time of first recognition.

Now if the original investment was categorized as "available for sale" the bonus received against it would be valued at fair value and credit will be taken to fair value reserve in equity. However, if the original investment was regarded as "through profit or loss" the bonus received against it should be valued at fair value and its credit will be taken to profit and loss account.

To my understanding there is no concept of treating such bonus shares straightforwardly as income in the meaning of dividends. However, the same thing could be done by following IAS-39 if the investment was categorized as "through profit or loss" but in such case it would appear as "unrealized gain on fair valuation of investment through profit or loss".

In the light of foregoing discussion, I believe that TR-15 may not be suitable if seen strictly in the meanings of IAS-39. However, the entities to which IAS-39 is not applicable, it may have relevance.

I would suggest you to write to the Technical Advisory Committee of ICAP for clarification, which in my view would provide you more relevant and authentic information.


In my view CA is the best option to think about either it is from ICAP or from ICAEW. However, if you plan to settle down at UAE or UK etc, ACCA would also help you a lot.

In the situation you have discussed in your post, the second suggested route (i.e. doing ACCA with job and then getting into CA through mutual recognition etc) appears to be more suitable and advisable.

Please do participate in forum activities positively and frequently.


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03-03-2009, 01:49 AM
Post: #3
Thank you Kamran Bhai for your precious suggestions. I hope by this way one day I will get good command over finance and other accounts issues.

Kind Regards,

Muhammad Rafay
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