SEBI Guidlines for determining maximum quantom of bonus issue
First test
Residual reserve test As per this guidline the residual reserve after the proposal of capitalisation ( bonus issu) should be at least 40% of increased paid up capital
5 Free reserve - 2 paid up capital before the bonus issue= -----------------------------------------------7
2nd test
Profitability requirement test
As per this guidline 30% of average amount of profit before tax in the previous three year should yield a rate of dividend of expended capital base of the company at 10%
= 3 average profit - existing share capital
First test
Residual reserve test As per this guidline the residual reserve after the proposal of capitalisation ( bonus issu) should be at least 40% of increased paid up capital
5 Free reserve - 2 paid up capital before the bonus issue= -----------------------------------------------7
2nd test
Profitability requirement test
As per this guidline 30% of average amount of profit before tax in the previous three year should yield a rate of dividend of expended capital base of the company at 10%
= 3 average profit - existing share capital
3rd test
Maximum limit requirement
This test indicates teh maximum amount which can be utilised for issue shares capital at one time shall not exceed the total amount of paid up equity capital of the company
Amount of bonus < total existing quity paid up capital
To determine a maximum amount of bonus which can be decleared the test mention above will be apply . Firstly the first two test will be consider the amount of bonus will be restricted upto the lower amount but this amount will not exceed the existing paid up capital of the company .
In brief the following steps should be consider for the purpose of bonus
1. Bonus shares not permitted in less existing partly paid up shres are converted into fully paid up shares
2. Bonus can not exist teh paid up equity capital of the company
3. The balance of residual reserve must not less than 40% of increased capital
4. 30% of average profit before tax of previous 3 year must yield 10% dividend on the increased capital
Accounting treatment of bonus shares
I am giving the full detail of accounting treatment of bonus shares step by step
1st case
When the partly paid up shares are converted into fully paid up shares through bonus issue
For providing the amoutn of bonus out of reserve , then the following journal entry will pass
Maximum limit requirement
This test indicates teh maximum amount which can be utilised for issue shares capital at one time shall not exceed the total amount of paid up equity capital of the company
Amount of bonus < total existing quity paid up capital
To determine a maximum amount of bonus which can be decleared the test mention above will be apply . Firstly the first two test will be consider the amount of bonus will be restricted upto the lower amount but this amount will not exceed the existing paid up capital of the company .
In brief the following steps should be consider for the purpose of bonus
1. Bonus shares not permitted in less existing partly paid up shres are converted into fully paid up shares
2. Bonus can not exist teh paid up equity capital of the company
3. The balance of residual reserve must not less than 40% of increased capital
4. 30% of average profit before tax of previous 3 year must yield 10% dividend on the increased capital
Accounting treatment of bonus shares
I am giving the full detail of accounting treatment of bonus shares step by step
1st case
When the partly paid up shares are converted into fully paid up shares through bonus issue
For providing the amoutn of bonus out of reserve , then the following journal entry will pass
- Capital
reserve account debit
- general
reserve account debit
- revenue
reserve account debit
- free
reserve account debit
- dividend
equalization fund account debit
- profit
and loss account debit
- Bonus
to equity shareholders account credit
- For
amount due on final call of shares ( Existing shares unpaid amount
- Share
final call account debit
- Share
capital account credit
- For
adjustment of final call amount out of profit
- Bonus
to shareholder account debit
- share
final call account credit
2nd case
When new fully paid up bonus shares are issued
a) for providing amount of bonus
When new fully paid up bonus shares are issued
a) for providing amount of bonus
- Capital
reserve account debit
- share
premium account debit
- capital
redemption reserve account debit
- other
general reserve account debit
- Profit
and loss account debit
- bonus
to shareholder account credit
b) for issue of bonus
- Bonus
to equity shareholder account debit
- equity
share capital account credit
Steps for calculation the value of bonus shares
1st step
Take the basis of bonus issue for the purpose of determining for purpose of total amount of bonus basis of bonus issue.
(a) To convert the existing partly paid up shares into fully paid up shares
Numbers of existing equity shares X unpaid amount
b) To determine the number of bonus shares
Bonus shares numbers Total no. of issued shares= __________ X ___________Basis issue numbers
c) Amount of new bonus shares= no. of bonus shares X issue price
Steps of capital budgeting process
Capital budgeting is process of selecting best long term investment project . Capital budgeting is long term planning for making and financing proposed capital out laying
Steps for capital budgeting process
Ist step
Identification involved in capital budgeting proposals
2nd step
Screening the proposal
3rd step
Evaluation of various proposals
4th step
Fixing the priorities
5th step
Final approval and planning the capital expenditure
6th step
Implementing the proposal
7th step
Performance review
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