CAF-7 · Chapter 8 · Question 6 of 15
Which of the following statements correctly differentiates a 'Rights Issue' from a 'Bonus Issue' of shares?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) A rights issue raises new cash and increases the company's assets, while a bonus issue simply converts existing reserves into share capital without raising new cash
Explanation
A rights issue requires existing shareholders to pay cash for new shares (increasing company assets). A bonus issue gives free shares to existing shareholders by capitalizing reserves, raising no new cash.
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