MCom I Semester Statistical Analysis Probability Study Material notes ( Part 2 )

MCom I Semester Statistical Analysis Probability Study Material notes ( Part 2 ): Application Addition Theorem When Events Mutually Exclusive Multiplication Theorem Calculation of Probability of at Least One Event Conditional Probability Theorem Calculation of Probability in Case of Odds is Known :

MCom I Semester Statistical Analysis Interpolation Extrapolation Study Material Notes

 (b) Application of Addition Theorem When Events are Not Mutually Exclusive: when events are not mutually exclusive or in other words, it is possible for both events to occur, the addition rule must be modified. For example, what is the probability of drawing either a king or a heart from a standard pack of cards is obvious that the events king and heart can occur together as we can draw a king of hearts (since king and heart are not mutually exclusive events)? We must reduce the probability of drawing either a king or a heart, the chance that we can draw both of them together. Hence for finding the probability of one or more of Iwo events that are not mutually exclusive. we use the modified form of the addition theorem. Symbolically:

SEBI Guidelines for Issue of Bonus Shares

In tune with current liberalization and reforms measures, the Securities and Exchange Board of India

vide its press release dated 13-4-1994 modified the guidelines for bonus issue. The text of modified guidelines are given below:

(i) Applicability : These guidelines are applicable to existing listed companies who shall forward certificate duly signed by the issuer and duly countersigned by its statutory auditor or by a company secretary in practice to the effect that the terms and conditions for issue of bonus shares as laid down in these guidelines have been complied with.

(ii) Rights of FCDs / PCDs holders : Issue of bonus shares after any public/right issue is subject to the condition that no bonus issue shall be made which will dilute the value or rights of the holders of debentures, convertible fully or partly. In other words, no company shall, pending conversion of FCDs/PCDs, issue any shares by way of bonus unless similar benefit is extended to the holders of such FCDs/PCDs, through reservation of shares in proportion to such convertible part of FCDs or PCDs. The shares so reserved may be issued at the time of conversion(s) of such debentures on the same terms on which the bonus issues were made.

(iii) Out of Free Reserves : The bonus issue is made out of free reserves built out of the genuine profits or securities premium collected in cash only.

(iv) Revaluation Reserves : Reserves created by revaluation of fixed assets are not capitalized.

(V) Bonus in Lieu of Dividend : The declaration of bonus issue, in lieu of dividend is not made.

(vi) Fully Paid Shares : The bonus issue is not made unless the partly paid shares, if any existing, are made fully paid-up.

(vii) No Default in respect of fixed deposits/debentures and statutory dues : The company :

(1) has not defaulted in payment of interest or principal in respect of fixed deposits and interest on existing debentures or principal on redemption thereof, and (2) has sufficient reason to believe that it has not defaulted in respect of the payment of statutory dues of the employees such as contribution to provident fund, gratuity, bonus etc. (viii) Implementation : A company, which announces its bonus issue after the approval of the Board of Directors must implement the proposal within a period of six months from the date of such approval and shall not have the option of changing the decision.

(ix) Provision in Articles : There should be a provision in the Articles of Association of the company for capitalisation of reserves etc. and if not, the company shall pass a resolution at its General Body Meeting making provisions in the Articles of Association for capitalisation.

(x) Authorised Capital : Consequent to the issue of bonus shares if the subscribed and paid-up capital exceed the authorised share capital, a resolution shall be passed by the company at its General Body Meeting for increasing the authorised capital.

Disposal Profit Issue Bonus

Accounting for Bonus Issue of Shares

(1) On sanction and declaration of bonus :

Profit & Loss Appropriation Account                                Dr.

Securities Premium Account

Respective Reserve Account

To Bonus to Shareholders Account

(2) On payment of bonus in cash :

Bonus to Shareholders Account                                      Dr.

To Bank Account

(3) On payment of bonus by issue of shares :

Bonus to Shareholders Account                                        Dr.

To Share Capital Account

Note: If bonus shares are issued at premium, securities premium account will be credited with the amount of premium.

(4) On payment of bonus by issue of debentures :

Bonus to Shareholders Account                                        Dr.

To Debentures Account

(5) When bonus is declared for making partly paid shares fully paid

(a) On making final call :

Share Final Call Account                                                  Dr.

To Share Capital Account

(b) On applying the bonus towards calls on shares :

Bonus to Shareholders Account                                        Dr.

To Share Final Call Account

Illustration 8. A limited company has share capital, which consists of 10,000 equity shares of Rs. 10 each, Rs. 7 per share called and paid. The company has also a reserve fund of Rs. 1,50,000. The company passed a resolution declaring a bonus of Rs. 1,05,000 for the shareholders. The bonus is to be utilised for making partly paid shares as fully paid and the balance to be used for the allotment of fully paid shares at 25% premium

Pass necessary journal entries to give effect to the above resolution of the company,