Question

    Which of the following is NOT an advantage of Bonus

    issue by a company?
    A It helps the company to retain cash Correct Answer Incorrect Answer
    B the company is able to offer more security to creditors Correct Answer Incorrect Answer
    C the company can reduce high rate of dividend Correct Answer Incorrect Answer
    D it helps the company to increase its net-worth Correct Answer Incorrect Answer

    Solution

    A bonus issue is the capitalisation of the reserves of the company. It is the issue of fully paid up shares for free to the existing shareholders to share the profits of the company in a non-cash manner. The bonus issue is made out of the free reserves or securities premium reserve or the capital redemption reserve of the company. Since these reserve are already a part of the networth of the company, issue of bonus shares does not change the networth of the company.

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