Multiple choice

What is the effect of issue of bonus shares?

  1. The profits are converted into share capital.

  2. The debt is converted into equity.

  3. The company's shares are redeemed.

  4. The equity is converted into debt.
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A Correct answer
Explanation

By the issue of bonus shares, the profits of the company are converted into share capital. The bonus shares are allotted by capitalizing the reserves and surplus. Hence, issue of bonus shares results in the conversion of the company's profits into share capital.

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