The correct answer is: A. Both (A) and (R) are true and (R) is the correct explanation of (A).
A bonus share is a share issued by a company to its existing shareholders, without any additional payment. The company can issue bonus shares out of its Capital Reserve. Capital Reserve is a reserve created by the company out of its profits, which is not available for distribution as dividends.
When a company issues bonus shares, the existing shareholders get additional shares in the company without any additional payment. This increases the number of shares held by the shareholders and their proportionate ownership in the company. It also increases the market value of the shares held by the shareholders.
The company can issue bonus shares out of its Capital Reserve to satisfy the shareholders and avoid the outflow of cash from business. This is because the company does not need to make any additional payment to the shareholders when it issues bonus shares.
Therefore, both (A) and (R) are true and (R) is the correct explanation of (A).