Meaning of Bonus Shares and Source of Bonus Shares

Some of you have confuse about bonus shares . Here I am giving complete definition of bonus shares . First , we should know about bonus .

Meaning of Bonus

Bonus means premium or gift which is paid normally in cash .


Meaning of Bonus shares

Bonus shares mean a gift or premium in form of stock by a company to its shareholders . It may be stated as extra dividend to share holder in a joint stock co. from surplus profits in the legal context a bonus share is neither dividend nor a gift . It is governed by regulations of the company law that it can neither be declared like a dividend nor gifted away .

Source of bonus shares

The bonus shares can be issued out of profit or reserve which have been earned by the company profit or reserve should be free for the purpose of dividend and as specified in company act . The reserves can not be used for issue of bonus which are not earned by company .

The following is the list of reserves which can be used for issuing bonus shares by passing the journal entries under its accounting treatment .

• Profit and loss account
• general reserve
• revenue reserve
• free reserves
• dividend equalization fund
• capital reserve
• sinking fund
• debenture redemption reserve only after redemption
• development rebate reserve
• allowance after expiry of 8 years
• capital redemption reserve
• share premium or security premium if received in cash