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    Question

    Which of the following statements is true with regard to declaring and issuing of Bonus Shares?

    A Assets are transferred from the company to the shareholders. Correct Answer Incorrect Answer
    B A Bonus issue results in decrease in reserves and surplus. Correct Answer Incorrect Answer
    C A Bonus issue is same as declaration of dividends. Correct Answer Incorrect Answer
    D A Bonus issue results devaluation of company. Correct Answer Incorrect Answer
    E None of the above 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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