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Question right issue of shares
03-02-2010, 01:38 AM,
Question right issue of shares
Right shares are issued when accumulated profit is being capitalized by the issuance of shares. Is it true or not?
03-02-2010, 01:44 AM,
03-02-2010, 04:11 AM,
Right Shares are issued to existing shareholders as privilege before being offered to general public. Rights shares are issued in exchange of money or anyother commodity. So, if such shares are issued at or above par value then there is no question of capitalization of reserves. However, in case of bonus issue, the company receives nothing but issues its shares to existing shareholders. In such case, the company actually pays dividend to its shareholders in form of shares which they can trade in stock markets. At the time of announcement of bonus shares the company maintains Bonus Share Reserve.

Accounting Entry -

==DR Accumulated Profits=======XXXX
=======CR Bonus Share Reserve====XXXX

At the time of issuance of Bonus Shares (Accounting Entry) -

==DR Bonus Share Reserve=======XXXX
=======CR Share Capital=============XXXX

This means the company has capitalized it reserves by transferring its accumulated profits to Share Capital.

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