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CMA Intermediate · Corporate Accounting and Auditing · Issue, Forfeiture, Rights, Bonus, Sweat Equity, ESOP and Buy-back of Shares

Lotus Ltd has 3,00,000 equity shares of Rs 10 each, fully paid, with market price Rs 60 before the bonus. It issues 1 bonus share for every 2 held. Ignoring other factors, the theoretical ex-bonus market price per share and the total market capitalisation are respectively:

Market capitalisation is Rs 1,80,00,000 before the bonus and does not change. Shares rise from 3,00,000 to 4,50,000, so the theoretical price falls to Rs 40 per share.

  1. ARs 40 and Rs 1,80,00,000Correct
  2. BRs 60 and Rs 2,70,00,000
  3. CRs 40 and Rs 1,20,00,000
  4. DRs 30 and Rs 1,80,00,000

Explanation

Initial market capitalisation = 3,00,000 x 60 = Rs 1,80,00,000. After the bonus shares = 4,50,000. Price = 1,80,00,000 / 4,50,000 = Rs 40. Capitalisation remains Rs 1,80,00,000 since no value is added. Rs 30 is wrong because it assumes a 1-for-1 bonus.

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