Issue of bonus shares
Payment of dividends
Payment of operating expenses
Redemption of debentures
Answer is Right!
Answer is Wrong!
The correct answer is: A. Issue of bonus shares.
Premium on issue of shares is the amount received by a company over and above the face value of the shares issued. It is a capital reserve and can be used for a variety of purposes, including the issue of bonus shares.
Bonus shares are shares that are issued to existing shareholders without any additional payment. They are usually issued in proportion to the number of shares already held by the shareholder. The purpose of issuing bonus shares is to increase the number of shares in issue and to boost the share price.
The other options are incorrect because:
- Payment of dividends: Dividends are paid out of the company’s profits. Premium on issue of shares is not a profit and cannot be used to pay dividends.
- Payment of operating expenses: Operating expenses are the costs incurred by a company in running its business. Premium on issue of shares is not an operating expense and cannot be used to pay for these costs.
- Redemption of debentures: Debentures are loans that a company has taken out. Premium on issue of shares is not a loan and cannot be used to repay debentures.