What is a bonus issue?

What is a bonus issue?

• A. Shares issued to the public at discount
• B. Shares issued to employees at market price
• C. Cash dividend payment
• D. Existing shareholders are given shares for no payment based on how many shares they currently hold

Answer: (D)

A bonus issue is when a company issues additional shares to its existing shareholders for no payment, in proportion to the number of shares they already own. This is typically funded by capitalizing reserves or retained earnings, not by new cash from investors. It increases the total number of shares and the paid-up capital, but the overall value of the company doesn’t change at the time of the issue; the market price per share usually falls to reflect the larger share count. It isn’t a cash dividend, it isn’t new shares offered to the public at a discount, and it isn’t shares issued to employees at market price. Therefore, the description matches the idea of existing shareholders receiving extra shares for free based on their current holdings.

A bonus issue is when a company issues additional shares to its existing shareholders for no payment, in proportion to the number of shares they already own. This is typically funded by capitalizing reserves or retained earnings, not by new cash from investors. It increases the total number of shares and the paid-up capital, but the overall value of the company doesn’t change at the time of the issue; the market price per share usually falls to reflect the larger share count. It isn’t a cash dividend, it isn’t new shares offered to the public at a discount, and it isn’t shares issued to employees at market price. Therefore, the description matches the idea of existing shareholders receiving extra shares for free based on their current holdings.