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CS Executive · Corporate Accounting and Financial Management · Accounting for Share Capital

Which of the following is a condition that must be satisfied before a company capitalises its reserves to issue bonus shares?

The company must not have defaulted in payment of interest or principal on fixed deposits or debt securities. Section 63 also requires articles authorisation, general meeting approval, no default in employee statutory dues, and that outstanding partly paid shares be made fully paid.

  1. AThe bonus shares are issued in lieu of dividend
  2. BThe company has not defaulted in payment of interest or principal on fixed deposits or debt securitiesCorrect
  3. COutstanding partly paid-up shares are left unchanged
  4. DOnly the Board's decision is needed, without general meeting authorisation

Explanation

Section 63(2) requires no default in interest or principal on fixed deposits or debt securities. Bonus shares cannot be issued in lieu of dividend, partly paid shares must be made fully paid, and general meeting authorisation on the Board's recommendation is needed.

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