Explain the following terms/concepts.
1. Capitalisation of Reserves
(1) The process of issuing the bonus shares out of the company’s profits or reserves is known as “Capitalisation of Profits or Reserves.
(2) It is a reward to shareholders, distributed in proportion to the number of shares each owns. The process has no impact on a corporation book value
2. Bonus Shares
(1) Bonus issues refer to the fully paid-up shares given to its existing equity shareholders without any cost, based upon the number of shares they are own. It is given at free of cost.
(2) For this purpose, a certain proportion is decided. For instance, if a person holds 100 shares and the company declares 1:2 bonus issues, then for every 2 shares held, he gets 1 share for free of cost.
3. Dividend Warrant
(1) A dividend warrant is a kind of document that reflects whether a shareholder is entitled for a dividend or not.
(2) It is an order of payment in which the dividend is paid. A company uses the dividend warrant to pay the dividend in the form of cashback.