The correct answer is: D. Dividend equalisation fund
Bonus shares are shares issued by a company to its existing shareholders without any additional payment. They are issued out of the company’s reserves, such as the profit and loss account, capital redemption reserve, and general reserve.
A dividend equalisation fund is a reserve that is created by a company to smooth out fluctuations in its dividend payments. It is funded by a portion of the company’s profits each year, and can be used to pay out dividends in years when the company’s profits are low.
Bonus shares cannot be issued out of a dividend equalisation fund because the purpose of the fund is to smooth out fluctuations in dividend payments, not to issue bonus shares. If bonus shares were issued out of the dividend equalisation fund, it would defeat the purpose of the fund.
Here is a brief explanation of each option:
- A. Profit and Loss a/c – The profit and loss account is a financial statement that shows a company’s income and expenses for a period of time. The profit and loss account can be used to calculate a company’s net income, which is the amount of money that the company has earned after deducting all of its expenses. Bonus shares can be issued out of the profit and loss account.
- B. Capital Redemption reserve – The capital redemption reserve is a reserve that is created when a company redeems its own shares. The capital redemption reserve can be used to issue bonus shares.
- C. General reserve – The general reserve is a reserve that is created to meet unexpected expenses or to make capital investments. The general reserve can be used to issue bonus shares.
- D. Dividend equalisation fund – A dividend equalisation fund is a reserve that is created by a company to smooth out fluctuations in its dividend payments. It is funded by a portion of the company’s profits each year, and can be used to pay out dividends in years when the company’s profits are low. Bonus shares cannot be issued out of a dividend equalisation fund.