Assertion (A): Issue of bonus shares will not affect the debt-equity ratio. Reason (R): Bonus shares are issued out of accumulated profits and thus neither affect debt nor equity. In the context of the above two statements, which of the following is correct?

Question

KollegeApply · Accepted Answer

Both (A) and (R) are correct and (R) is the correct reason of (A). Explanation: Bonus shares are issued from accumulated profits (reserves), so only the amount from reserves is transferred to share capital. The total shareholder funds and debt remain unchanged. Thus, the debt-equity ratio is not changed. As a result, both Assertion and Reason are correct, and Reason correctly explains Assertion.

AChoose Your Answer