BASIS FOR

INFLATION DEFLATION
COMPARISON
Meaning When the value of Deflation is a
money decreases in situation, when the
the international value of money
market, then this increases in the
situation is termed international
as inflation. market.

Effects Increase in the Decrease in the

general price level general price level

National income Does not declines Declines

Gold prices Falls Rises
Classification Demand pull Debt deflation,
inflation, cost push money supply side
inflation, deflation, credit
stagflation and deflation.
deflation.
Good for Producers Consumers
Consequences Unequal Rise in the level of
distribution of unemployment
income.
Which is evil? A little bit of Deflation is not
inflation is a good for an
symbol of economic economy.
growth of the
Capital market 

 Capital market is a market where buyers

and sellers engage in trade of financial
securities like bonds, stocks, etc. ...
Generally, this market trades mostly in
long-term securities. Capital
market consists of primary markets and
secondary markets.
Money Market

 The money market refers to trading in

very short-term debt investments. At the
wholesale level, it involves large-volume
trades between institutions and traders. At
the retail level, it includes money
market mutual funds bought by individual
investors and money market accounts
opened by bank customers.
 SEBI guidelines on bonus issue of a
company are as follows:
1. No bonus shares shall dilute other issues:
10 shares @ Rs.10 each = Rs.100 = Fully Paid up Shares
10 Share @ Rs.8 each = Rs.80 = Partly Paid up shares
10 Shares @ Rs.2 = Rs.20 = Unpaid Shares
 Issue of bonus shares shall not be made pending conversion of fully
convertible debentures or partly convertible debentures unless sufficient
number of shares is reserved for allotment to the holders of the said
FCDs or PCDs after conversion.

 CAPITALIZATION OF PROFITS = 10,000 BONUS SHARES @Rs.10 =

Rs.1,00,000
 From Profits/ Reserves/ Accumulated Earnings/ = Company converts its
Balance into Share Capital
 Bonus Issue = Free Share
 = Capitalization of Profits
 Right Issue = Additional Share capital company
raised when company need additional finance.
 = Right Shares are issued at discounted
price to raise capital
 Similarity = Shares are issued to Existing
Shareholders or to Current Investors.
 2. Bonus issue from free reserves:

 Bonus shares can be issued only out of free reserves

built out of genuine revenue profits or share premium
collected in cash.

 100 shares @ Rs.50 (Face Value) = Rs.5000

 100 shares @ Rs.60 (including premium price) = Rs.6000
 Rs.1000 = Share Premium
 3. Revaluation reserve not eligible:

 Reserve created by revaluation of assets cannot be

capitalized for issue of bonus shares.
 4. Issue in lieu of dividend:

 Bonus issue shall not be made in lieu of dividend.

 5. Partly paid shares not eligible:

 Partly paid shares, if any, will not be eligible for bonus shares.
Such partly paid shares, if any, must be made fully paid
before a bonus issue is contemplated.
 Right Shares: Additional capital, company
issue Right shares to existing share
holders.
 Bonus Shares: Utilized the amount of free
reserves by doing capitalization of profits
 For example, Reliance Industries (RIL) came
up with the largest rights issue* of more than
Rs.53,000 crore in 2020. For this, RIL issues
partly paid shares. The shares were issued at
a price of Rs 1,257 per share. But out of this,
25 per cent, i.e., Rs 314.25 had to be paid at
the time of allotment and the rest 75 per cent
in the current financial year. As per the
payment schedule, the next instalment of 25
per cent is due next month and investors
holding these partly paid shares will have to
pay Rs 314.25, with the remaining Rs 628.50
(balance 50 per cent) to be paid in November
2021.
 6. No default of payment of interest, etc.:

 The issuing company shall not have defaulted in the

payment of interest or principal in respect of fixed
deposits and interest payment on debentures or repayment
of principal on redemption of debentures. The company
must be certain that it has not defaulted in respect of
payment of statutory dues of the employees, such as
contribution of provident fund, gratuity, bonus, etc.
 7. Time within which bonus issue shall be made:

 A company which announces a bonus issue after the

approval of its Board of Directors must implement the
proposal within a period of six months from the date
of such approval.
 8. Bonus proposal cannot be withdrawn:

 A company which has announced its proposal to issue bonus

shares, cannot have the option to change its decision.
 9. Provision in the articles: AOA
 “Conversion of Profits or Reserves or Accumulated
Earnings into Share Capital”
 There must be a suitable provision in the Articles of
Association of the company for capitalisation of reserves. If
not, the company must pass a special resolution and
incorporate a suitable provision in the Articles of Association,
before initiating action for a bonus issue.
 10. Increase in authorized capital:

 Where necessary, before action on a bonus issue is

taken, the company shall capital so as to permit the
proposed bonus issue. increase its authorised
 11. Prohibition of issue of bonus shares by
revaluation of assets:

 The Department of Company Affairs has vide Circular

No. 9/94 dated 6-9-1994, informed all companies
(listed as well as unlisted) that no company shall
venture to issue bonus shares out of reserves created
by revaluation of fixed assets.
Bonus Shares are issued to whom?
 Bonus issues are given to shareholders
when companies are short of cash and
shareholders expect a regular income.
 Shareholders may sell the bonus
shares and meet their liquidity
needs. Bonus shares may also
be issued to restructure company
reserves.
Rules of Accounting
 Company = “Company is an artificial person being invisible,
intangible and existing only in the contemplation of law”
 Real A/c = Real Assets
Debit What comes in
Credit What goes out
 Personal A/c = 3 types of persons
1) Natural Person
2) Artificial person
3) Representatives
Debit the receiver
Credit the giver
 Nominal A/c
Debit all expenses and losses
Credit all incomes and gains
 Journal Entries for Issue of Bonus Shares (Contd.)

1. When Bonus to shareholders is declared

Capital Redemption Reserve A/c Dr.

Securities Premium A/c Dr.
General Reserve A/c Dr.
Surplus OR Divisible Profits A/c Dr.
To Bonus to Shareholders A/c

2. For issue of fully paid bonus shares

Bonus to Shareholders A/c Dr.

To Equity Share Capital A/c

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 Journal Entries for Issue of Bonus
Shares
3. When Bonus to shareholders is used to make existing partly
paid shares as fully paid up: Dr.

(a) For making final call due

Equity Share Final Call A/c
To Equity Share Capital A/c
Dr.
(b) For adjusting bonus to shareholders against final call due:
Bonus to Shareholders A/c
To Equity Share Final Call A/c

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