Skip to content

CMA Intermediate · Financial Management and Business Data Analytics · Dividend Decisions and Dividend Theories

Sunrise Pharma Ltd has 4,00,000 equity shares of Rs 10 each, share capital Rs 40,00,000, and reserves of Rs 60,00,000. It issues bonus shares in the ratio 1:2 out of reserves. What are the equity share capital and the reserves after the issue?

Share capital becomes Rs 60,00,000 and reserves Rs 40,00,000. A 1:2 bonus creates 2,00,000 new shares of Rs 10, capitalising Rs 20,00,000 from reserves. Total net worth remains Rs 1 crore because the amount is only transferred from reserves to share capital.

  1. AShare capital Rs 60,00,000; reserves Rs 40,00,000Correct
  2. BShare capital Rs 40,00,000; reserves Rs 60,00,000
  3. CShare capital Rs 60,00,000; reserves Rs 60,00,000
  4. DShare capital Rs 80,00,000; reserves Rs 20,00,000

Explanation

Bonus shares = 4,00,000 / 2 = 2,00,000 shares of Rs 10 = Rs 20,00,000. Share capital becomes 40 + 20 = Rs 60 lakh and reserves fall to 60 - 20 = Rs 40 lakh. Total net worth stays Rs 1 crore. Leaving reserves at Rs 60 lakh double counts the capitalised amount.

Did you get it right without looking?

One question tells you little. A timed set on Dividend Decisions and Dividend Theories shows your real accuracy, how long you take and where you lose marks.

Practise Dividend Decisions and Dividend TheoriesFree diagnostic mock

More Dividend Decisions and Dividend Theories questions