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Capital structure and finance costs

2.3 Bonus issue

A bonus issue is a 'free' issue of shares to current shareholders in proportion to their
existing shareholding i.e. the company receives no cash or any other consideration in
exchange for the share issue. In effect, it is a way for the company to capitalise its
reserves and increase the number of shares in issue, which will also reduce the
market value per share.

The accounting entries to record a bonus issue would be:

Debit Share premium/retained earnings (nominal value × no. of shares)

Credit Share capital account (nominal value x no. of shares)

Illustrations and further practice

Now try question TYU 1, 2 and 3 and 4 from Chapter 13 of the Study Text.

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