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

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

Any outstanding partly paid-up shares must be made fully paid-up on the date of allotment. The Act also requires articles authority, general meeting approval on the Board's recommendation, no default in deposits, debt or employee statutory dues, and forbids bonus in lieu of dividend.

  1. ABonus shares may be issued in lieu of dividend if shareholders agree
  2. BOutstanding partly paid-up shares must be made fully paid-up on allotment dateCorrect
  3. CAuthorisation in the general meeting is not needed if articles permit
  4. DThe company may have defaulted in employees' provident fund dues if it has profits

Explanation

Section 63(2)(e) requires partly paid-up shares outstanding on allotment to be made fully paid. Section 63(3) forbids bonus shares in lieu of dividend. Section 63(2) requires both articles authorisation and general meeting authorisation on Board recommendation, and no default in statutory employee dues.

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