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CS Executive · Corporate Accounting and Financial Management · Related Aspects of Company Accounts

Under the Companies Act, 2013, which of the following sources CANNOT be capitalised for issuing fully paid-up bonus shares?

A reserve created by revaluation of assets cannot be capitalised for bonus shares. The Companies Act permits free reserves, securities premium and capital redemption reserve, but a proviso expressly prohibits using revaluation reserves, because they represent unrealised gains rather than distributable profits.

  1. ASecurities premium account
  2. BCapital redemption reserve account
  3. CFree reserves
  4. DReserve created by revaluation of assetsCorrect

Explanation

Section 63(1) permits bonus shares out of free reserves, the securities premium account or the capital redemption reserve account. The proviso bars capitalising reserves created by revaluation of assets, since such a reserve is unrealised. The other three sources are expressly allowed.

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