Bonus Issue Journal Entries Explained with Examples

What is a Rights Issue?

A rights issue is when a company offers its existing shareholders the right to buy additional shares, usually at a discounted price, in proportion to their current shareholding. It is a way to raise fresh capital while protecting shareholders from dilution.

• Offered to existing shareholders first
• Priced below market price to make it attractive
• Shareholders can accept, decline, or renounce the right

What is a Bonus Issue?

A bonus issue (also called a scrip issue or capitalisation issue) is when a company issues free additional shares to existing shareholders, in proportion to their holdings, without any cash inflow. It is done by capitalising reserves and profits.

• No cash is received by the company
• Reserves are converted into share capital
• Improves liquidity and makes shares more affordable

Key Differences

• Rights issue: raises funds, paid by shareholders
• Bonus issue: no funds raised, free shares
• Rights issue: optional for shareholders
• Bonus issue: automatic for all eligible shareholders

Journal Entries for Bonus Issue

Bonus shares can be issued in two ways:

1. Fully paid bonus shares out of free reserves or securities premium
2. Partly paid bonus shares (less common)

Case 1: Bonus Issue out of Free Reserves (Fully Paid)

Example: A company has free reserves of ₹5,00,000. It decides to issue bonus shares of ₹3,00,000 (face value ₹10 each).

Journal Entry:

• Debit: General Reserve / Free Reserves A/c ₹3,00,000
• Credit: Share Capital A/c ₹3,00,000

Narration: Being bonus shares issued out of free reserves.

Case 2: Bonus Issue out of Securities Premium

Example: A company has securities premium of ₹2,00,000. It issues fully paid bonus shares of ₹2,00,000.

Journal Entry:

• Debit: Securities Premium A/c ₹2,00,000
• Credit: Share Capital A/c ₹2,00,000

Case 3: Bonus Issue out of Capital Redemption Reserve (CRR)

Example: A company uses its Capital Redemption Reserve of ₹1,50,000 to issue bonus shares.

Journal Entry:

• Debit: Capital Redemption Reserve A/c ₹1,50,000
• Credit: Share Capital A/c ₹1,50,000

Important Points for Exams

• Bonus issue must be authorised by Articles of Association
• SEBI guidelines must be followed for listed companies
• Bonus shares can be issued out of free reserves, securities premium, or capital redemption reserve
• No journal entry is passed in the books of the shareholder for bonus shares (only memorandum entry)

This guide is perfect for CA, CS, CMA, and B.Com students preparing for accounting and corporate law exams.