Bonus Issue Calculation

A bonus issue (or a scrip issue) is an issue of free shares to the existing shareholders of the company. The number of bonus shares distributed to the stockholders is in direct proportion to their existing shareholding in the company. For instance, a one-for-six bonus will enable a present shareholder to receive one free share for every six ordinary shares held.

Learn how to calculate bonus issue of shares with the following example:

The following information relates to CCK Ltd:
Capital and reserves:
200,000 $1 ordinary shares $200,000
Share premium $30,000
General reserve $20,000
At the end of the year, the company declared a 1 for 4 bonus issue to capitalize all the reserves.

Free issue = 200,000 * 1/4 = 50,000 shares
After the bonus issue, the share capital is: 200,000 + 50,000 = $250,000
Share premium = $0
General reserve = $0
Note: The bonus shares of $50,000 are financed out of the company reserves, i.e., $30,000 from share premium and $20,00 from general reserve.

* Next: Bonus Issue vs Right Issue