## Bonus Shares — Treatment under AS 13

### What Are Bonus Shares?

Bonus shares are additional shares issued free of cost to existing shareholders in proportion to their holdings (e.g., 1:5 means 1 bonus share for every 5 held).

### Accounting Treatment

Bonus shares are recorded at NIL cost — only the number of shares increases; no amount is debited.

Column	Effect
No. of Shares	Increases
Amount (₹)	Zero (₹0)

Journal entry in substance:

```

Investment A/c Dr (Shares: +n, Amount: ₹0)

To — (no credit entry in rupee terms)

```

### Effect on Weighted Average Cost (WAM)

Total cost stays the same; spread over more shares → WAM per share decreases.

New WAM = Total Cost before bonus ÷ Total Shares (old + bonus)

### Key Rule

> Bonus shares are never recorded at market value or issue price. The share count goes up; the rupee cost does not. This automatically lowers WAM.

Worked example

### Example 1

Example 1 (WN1 — Page 49):

Holding: 25,000 shares, total cost = ₹3,30,000
Bonus ratio 1:5 → 25,000 ÷ 5 = 5,000 bonus shares
Investment Ledger: Dr side → 5,000 shares, ₹0
New total: 30,000 shares, ₹3,30,000
New WAM = 3,30,000 ÷ 30,000 = ₹11 per share

### Example 2

Example 2 (Page 50 — Bonus 1:1):

After purchases: 2,500 shares, total cost = ₹57,500, WAM = ₹23
Bonus ratio 1:1 → 2,500 bonus shares
Dr: 2,500 shares, ₹0
New total: 5,000 shares, ₹57,500
New WAM = 57,500 ÷ 5,000 = ₹11.50 per share

### Example 3

Example 3 (Q27 — Page 54-55):

Sold 8,000 shares on 15.05.19; remaining = 32,000 shares
Bonus ratio 1:4 on remaining 32,000 → 8,000 bonus shares (25.06.19)
Dr: 8,000 shares, ₹0
Original cost = ₹60,000 spread over 40,000 shares
New WAM = 60,000 ÷ 40,000 = ₹1.50 per share

⚠️ Common exam mistakes

Recording bonus shares at market price or face value instead of NIL — only share count changes
Forgetting to recompute WAM after bonus shares (WAM must decrease)
Using pre-bonus share count for subsequent right share entitlement calculations — use post-bonus count
Including bonus shares in dividend calculation when question specifically excludes them

Bare-Act text Para 13 (Cost of Investments) · AS 13 – Accounting for Investments (ICAI) · click to expand

In case of shares acquired by way of bonus, the cost of acquisition shall be taken as NIL and the total cost of the original shares shall be spread over the enlarged number of shares.

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AS 13 – Bonus Shares: Treatment in Investment Account

Worked example

⚠️ Common exam mistakes