ISSUE OF BONUS SHARES :

(1) A company may issue fully paid-up bonus shares to its members, in any manner out of –

(i) its free reserves;

(ii) the securities premium account; or

(iii) the capital redemption reserve account.

However, no issue of bonus shares shall be made by capitalising reserves created by the revaluation of assets.

(2) No company shall capitalise its profits or reserves for the purpose of issuing fully paid-up bonus shares under

(1) above, unless –

a) it is authorised by its articles;

b) it has, on the recommendation of the Board, been authorised in the general meeting of the company;

c) it has not defaulted in payment of interest or principal in respect of fixed deposits or debt securities issued by it;

d) it has not defaulted in respect of the payment of statutory dues of the employees, such as, contribution
to provident fund, gratuity and bonus;

e) the partly paid-up shares, if any outstanding on the date of allotment, are made fully paid-up;

f) The company which has once announced the decision of its Board recommending a bonus issue, shall not subsequently withdraw the same. [Rule 14 of Companies (Share Capital and Debentures) Rules, 2014]

(3) The bonus shares shall not be issued in lieu of dividend.

JOURNAL ENTRIES FOR ISSUE OF BONUS SHARES

(A) On capitalization of reserve for issue of shares
Profit & Loss Account                                                                                                                             Dr.
General Reserve Account                                                                                                                       Dr.
Capital Reserve Account (realised in cash only)                                                                              Dr.
Securities Premium Account                                                                                                                 Dr.
Capital Redemption Reserve Account                                                                                                Dr.
To Bonus to Shareholders Account.

(B) On issue of Bonus share

(a) Bonus to Shareholders Account                                                                                                     Dr.
To Share Capital Account.
If some shares are party paid-up, first the shares are to me made fully paid up.

Journal entries on converting partly paid shares into fully paid shares

Profit & Loss Account                                                                                                                             Dr.
General Reserve Account                                                                                                                      Dr.
Capital Reserve Account (realised in cash only)                                                                             Dr.
To Bonus to Shareholders Account

On making the final call due

Share Final Call Account                                                                                                                      Dr.
To Share Capital Account

On adjustment of final call

Bonus to Shareholders Account                                                                                                        Dr.
To Share Final Call Account