CS Executive · Corporate Accounting and Financial Management · Dividend Decisions
Meera Pharma Ltd has equity share capital of Rs 50,00,000 (5,00,000 shares of Rs 10) and free reserves of Rs 30,00,000. It issues bonus shares in the ratio 1:5 by capitalising free reserves. What are the paid-up capital and free reserves after the issue?
Paid-up capital becomes Rs 60,00,000 and free reserves Rs 20,00,000. Bonus of 1:5 creates 1,00,000 shares worth Rs 10,00,000, transferred from reserves to capital, leaving total net worth unchanged at Rs 80,00,000.
- ACapital Rs 55,00,000; reserves Rs 25,00,000
- BCapital Rs 60,00,000; reserves Rs 20,00,000Correct
- CCapital Rs 60,00,000; reserves Rs 30,00,000
- DCapital Rs 50,00,000; reserves Rs 20,00,000
Explanation
Bonus shares = 5,00,000 / 5 = 1,00,000 shares of Rs 10 = Rs 10,00,000. Capital becomes 60,00,000 and reserves fall to 20,00,000; total net worth stays Rs 80,00,000. Keeping reserves unchanged ignores the capitalisation, which would increase net worth.
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