Directions: Choose the correct option for the given question.
Which of the following heads of balance sheet of a company will be affected, when bonus issue was declared?
(i) Share Capital
(ii) Reserve and Surplus
(iii) Current Liabilities and Provision
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(i) & (ii)
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(ii) & (iii)
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(i) & (iii)
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All of the above
A
Correct answer
Explanation
When a bonus issue is declared, shares are issued to existing shareholders free of cost by capitalizing reserves. This affects two balance sheet heads: (i) Share Capital increases as new shares are issued, and (ii) Reserves and Surplus decreases as the amount is transferred from reserves (like Securities Premium, General Reserve, etc.) to Share Capital account. Current Liabilities and Provisions are not affected because bonus issue is a capitalization of reserves, not a transaction involving current liabilities. The total shareholders' equity remains unchanged, only its composition changes.