Question

Which of the following statements are correct?
A company may issue fully paid-up bonus shares to its members, in any manner whatsoever, out of: -
(i) The capital redemption reserve account.
(ii) The securities premium account.
(iii) The surplus in profit and loss account on measurement of the asset or the liability at fair value.
(iv) Its free reserves.

• A. Only (i), (ii), and (iii)
• B. Only (i), (ii), and (iv)
• C. Only (i), (iii), and (iv)
• D. Only (ii), (iii), and (iv)

Hint:

Bonus shares cannot be issued in lieu of dividends.
Additionally, they can only be issued if the existing partly paid-up shares are made fully paid-up.

Answer 1

The Correct Option is B

Step 1: Understanding the Question:
The question asks to identify the statutory sources from which a company is permitted to issue fully paid-up bonus shares under Section 63 of the Companies Act, 2013.

Step 2: Detailed Explanation:

• Section 63(1) of the Companies Act, 2013: A company may issue fully paid-up bonus shares to its members out of:
1. Its free reserves; (Statement iv)
2. The securities premium account; (Statement ii)
3. The capital redemption reserve account. (Statement i)

• Prohibition on Revaluation Reserves: Section 63(1) explicitly states that no issue of bonus shares shall be made by capitalizing reserves created by the revaluation of assets.
A surplus from fair-value measurement of assets/liabilities is unrealized gain and represents a revaluation reserve.
Therefore, it cannot be used for issuing bonus shares. (Statement iii is incorrect)

Step 3: Final Answer:
Statements (i), (ii), and (iv) are correct sources, matching Option B.