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    Question

    Which of the following statements is true  with regard

    to  declaring and  issuing of  Bonus Shares?  
    A A Bonus issue results in decrease in networth of the company Correct Answer Incorrect Answer
    B A Bonus issue results in decrease in reserves and surplus Correct Answer Incorrect Answer
    C A Bonus issue is expenses through the profit and loss statement of the company. Correct Answer Incorrect Answer
    D A Bonus issue results in devaluation of the company. Correct Answer Incorrect Answer
    E Through Bonus issue the assets are transferred from the company to the shareholders Correct Answer Incorrect Answer

    Solution

    When a company issues bonus shares, it typically  utilizes  its reserves or  retained  earnings to capitalize the shares. This means that the company is  essentially converting  a part of its reserves into share capital, which could result in a decrease in the reserves and surplus on the balance sheet.  

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