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CS Executive · Company Law and Practice · Distribution of Profits

Lotus Textiles Ltd has a general reserve of ₹40 lakh, a securities premium account of ₹15 lakh and a revaluation reserve of ₹25 lakh created on revaluing its land. Its articles authorise capitalisation. Which of these can NOT be used to issue fully paid-up bonus shares?

The revaluation reserve cannot be used. Section 63 permits bonus shares out of free reserves, securities premium or capital redemption reserve, but its proviso expressly prohibits capitalising reserves created by revaluation of assets, so Lotus Textiles must use one of the other sources.

  1. ASecurities premium account
  2. BRevaluation reserve created by revaluing assetsCorrect
  3. CGeneral reserve
  4. DCapital redemption reserve account

Explanation

Section 63(1) allows bonus shares out of free reserves, the securities premium account or the capital redemption reserve account. Its proviso bars capitalising reserves created by revaluation of assets. The other three sources are expressly permitted.

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