1.43     Query

Free Reserves available for the purpose of Issue of

Bonus Shares.

An article published in Bulletin of the Council of the Institute in December, 1976 states that for the purpose of issue of bonus shares (a) Amalgamation Reserves (b) Revaluation Reserves, (c) Surplus arising out of sale of assets (d) any surplus arising from a change in the method of depreciation, will not constitute free reserves and these will not be available for capitalisation.

The guidelines issued by the Controller of Capital Issues on Bonus Shares dated 2-3-74, clause 17, read as under:

 ‘Capital Reserves appearing in the Balance Sheet of the company as a result of revaluation of assets without accrual of cash resources will neither be allowed to be capitalised nor taken into account in the computation of the residual reserves of 33.33% for the purpose of bonus issue’.

It can be inferred from the above that any profit realised in cash on sale of fixed assets of the company will be allowed to be capitalised.

   Does this not contradict the view expressed by the contributor of the Article referred to above?

                                                                     Opinion                                         January 16, 1978

In the opinion of the Committee profit on sale of fixed assets realised in cash and transferred to Capital Reserve should be available for issue of bonus shares.  It is a free reserve and falls within the guidelines issued by the Controller of Capital Issues.  The interpretation given by the Controller of Capital Issues to such capital reserve is precisely stated in the note on issue of bonus shares issued by the Institute CICA News Letter December, 1976.

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