Consider the following statements:
1. Bonus shares represent capitalisation of profits
2. Sweet Equity represents contribution to a project in the form of efforts and toil
Which among the above statements is / are correct?

Answer: [C] Both 1 & 2

Profit making companies may desire to convert their profit into share capital. This can be done by issue of bonus shares. Issue of Bonus shares is also called as conversion of profit into share capital or capitalization of profits. Bonus can be of two types:

  • Making partly paid shares into fully paid by declaring bonus without requiring shareholders to pay for the same.
  • Issue of fully paid equity shares as bonus shares to the existing equity shareholders

Sweet Equity is contribution to a project or enterprise in the form of effort and toil. Sweat equity is the ownership interest, or increase in value, that is  created as a direct result of hard work by the owner(s).

This question is a part of GKToday's Integrated IAS General Studies Module