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Auditing/Bonus shares

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Expert: Consuelo Herrera, International Accountant and Fraud Examiner - 8/9/2009


Question
I read your answer on bonus shares. I have a doubt. Suppose a company has got USD100000 in its cash reserve and then it issue 100000 bonus shares of PAR value USD1 each. SO its issue capital should increase by USD100000 and cash reserve should decrease by the same amount. But this much money is still owned by the company in same bank account. In this way company is generating new shares(new money to shareholders) without spending any money.

Answer
Deay Gyan,

Thank you for contacting me.

These are two different transactions. The face value of the shares is the same while the number of shares increases. The equation is present because there is an increase in share capital and decrease in the reserves. This transaction as you stated, leaves the company with cash but without reserves.

I would suggest that you go over the problems presented in the link below regarding leverage situations. It will provide good insight an a better understanding. Just copy and paste the link.


http://www.slideshare.net/sagar_sjpuc/leverages-problems-presentation


Best wishess for success.


Sincerely,


Consuelo Herrera, CAMS, CFE
www.fraudsolutionsinternational.com

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Consuelo Herrera, International Accountant and Fraud Examiner

Expertise

I can answer questions concerning internal and operational auditing, fraud prevention procedures, internal control, the Sarbanes-Oxley Act, COSO control concepts, and management oriented auditing. I would love to provide business-owners with suggestions on how to prevent and detect fraud so that they are proactive in protecting their wealth since the very beginning of their entrepreneurial affairs. I can answer questions to both English and Spanish population. I am very committed to keep my standards up today so I know many resources where I can direct those seeking advice.

Experience

I have rendered services for private companies, profit and non for profit, in two countries. As independent consultant I have provided advice to managers in implementing procedures that streamline their operations and enhance their activities. As a staff accountant in a US CPA firm, I performed regular auditing procedures for different engagements.

Organizations
AICPA (American Association of Certified Public Accountants), ACFE (Association of Certified Fraud Examiners), ACFEI (American College of Forensic Examiners.

Education/Credentials
Bachelors of Sciences in Business Administration – Accounting University of South Florida USF – Tampa Florida Catholic University – Colombia Title earned: Specialist in Tax and Customs Central Foundation University – Colombia Title earned: Certified Public Accountant. On August, 2006 I passed all four sections of the Certified Fraud Exam which tests for proficiency in the following areas: Criminology and Ethics, Financial Transactions, Legal Elements of Fraud, and Fraud Investigation.

Awards and Honors
As employee of Forensic Technology Inc. a Canadian company with locations and sites worldwide, I was the winner of the 2005 President's award in the category of Cost Savings through Efficiency or Innovation granted in January 2006 in Montreal, Canada.

Past/Present Clients
I have provided advice to all kind of companies: manufacturing, service, consulting, non for profit organizations, etc.

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