The correct answer is: C. by A and B both.
Capitalisation of profit is the process of converting a company’s retained earnings into share capital. This can be done by issuing fully paid bonus shares or by making partly paid shares fully paid.
When a company issues fully paid bonus shares, it is essentially giving its shareholders free shares. This can be done by increasing the number of shares in issue or by reducing the nominal value of each share.
When a company makes partly paid shares fully paid, it is essentially asking its shareholders to pay the remaining amount that is owed on their shares. This can be done by issuing a call notice or by making a payment out of the company’s distributable profits.
Both of these methods of capitalisation of profit can be used to increase the company’s share capital and to reward its shareholders.
Option A is incorrect because it states that capitalisation of profit is possible only by issue of fully paid bonus shares. This is not true, as capitalisation of profit can also be done by making partly paid shares fully paid.
Option B is incorrect because it states that capitalisation of profit is possible only by making partly paid shares fully paid. This is not true, as capitalisation of profit can also be done by issuing fully paid bonus shares.
Option D is incorrect because it states that none of the above is correct. This is not true, as both A and B are correct.