Following is the Shareholders’ funds of a company: • Share capital Rs.300,000 (FV 10 Rs. each share),  • Revaluation Reserve Rs.50,000,  • Retained Profits Rs.200,000,  • Securities Premium Rs.75,000 The company came up with the bonus Issue in the ratio of 1:2. In this case, how much profits will be capitalized from Retained Earnings?

Bonus issue of 1:2 means that 1 bonus share will be given for every 2 equity shares held. Bonus shares to be issued will be (Rs.300,000/10)/2 = 15,000 shares of Rs.150,000 value. Bonus shares can be issued to its members, out of the following: • Free reserves (like retained profits) • Securities Premium,  • CRR Here, Rs.75,000 will be taken from Securities Premium and the remaining Rs.75,000 (Rs.150,000-Rs.75,000) will be taken from Retained Profits thereafter.