2. • When the additional shares are allotted to the existing
shareholders without receiving any additional payment
from them, it is known as issue of bonus shares.
• Bonus shares are allotted by capitalizing the reserves
and surplus.
• Issue of bonus shares results in the conversion of the
company's profits into share capital. Therefore it is
termed as capitalization of company's profits.
• Since such shares are issued to the equity shareholders
in proportion to their holdings of equity share capital
of the company, a shareholder continues to retain his /
her proportionate ownership of the company.
3. Advantages to the shareholders:
• Tax benefits:-
When the share holder receives
dividend in cash it is taxed in total income.
He will be benefited when issued in shares.
Indication of higher future profits:-
Increase in future dividend:-
Increases credit worthiness:-
