Question

Consider the following statements:
1. The issuance of bonus shares by a company involves converting profits into additional shares.
2. Sweat equity refers to the compensation in lieu of payment for the contribution made to a project.
Which among the above statements is/are correct?

• A. Only 1
• B. Only 2
• C. Both 1 \& 2
• D. Neither 1 nor 2

Hint:

Bonus shares increase the number of shares without raising capital, while sweat equity rewards contribution through shares instead of cash.

Answer 1

The Correct Option is C

Step 1: Understand Statement 1
Issuance of bonus shares means a company distributes additional shares to existing shareholders by converting its accumulated profits or reserves into share capital. This does not involve fresh funds coming into the company. So, Statement 1 is correct.
Step 2: Understand Statement 2
Sweat equity is the shares or compensation given to employees or contributors in exchange for their work or contribution, instead of monetary payment. This recognizes their efforts and participation. So, Statement 2 is also correct.
Step 3: Conclusion
Both statements are true.
Thus, Option (C) Both 1 \& 2 is correct.