Engineers India Limited (EIL) was set up in 1965 to provide engineering and related technical services for
Engineers India Limited (EIL) was set up in 1965 to provide engineering and related technical services for petroleum refineries and other industrial projects. Its range of services include project management consultancy (PMC), project implementation services (PMS), engineering, procurement and construction (EPC) and lump sum turnkey (LSTK) contracts. The company has an enviable track record of profitability. For the year 2009–10, EIL posted a profit after tax of ₹ 43,557 lakh on a total income of ₹ 217,747 lakh. EIL does not have any borrowed funds on its balance sheet and has been rewarding its shareholders with regular cash dividends. After paying dividends any surplus in the profit and loss account is transferred to the general reserves. The share capital and reserves and surplus of EIL as on 31st March 2010 are given as follows:
During the year 2010–11, EIL decided to make a bonus issue to the existing shareholders in the ration of 2:1 (2 new shares for 1 held). For this purpose, it decided to utilize the entire balance available in the share premium account and the necessary amounts from the general reserves as well. At the same time it was also decided to split the shares in the ratio of 2 for 1. Accordingly, each share of face value of ₹ 10 was split into two shares of face value ₹ 5 each. The company increased the authorized share capital to ₹ 30,000 lakh divided in 6,000 lakh equity share of ₹ 5 each.
During the year 2010–11, EIL earned a profit after tax of ₹ 52,251.94 lakh and paid an interim dividend of ₹ 3,367.37 lakh. The board of directors of the company also proposed a final dividend of ₹ 13,477.46 lakh. The dividend distribution tax of ₹ 2,663.72 lakh was also paid. After these appropriations the balance amount was transferred to the general reserve account.
1. How will the shareholders’ funds appear in the balance sheet of Engineers India Limited as on 31st March 2011?
2. What is the impact of bonus issue and stock split on share capital, shareholders’ funds and promoters’ stake in the company?
3. How do stock split and bonus issue affect the assets of the company?
Step by Step Answer: