Explain what is bonus share or scrip issue. Give a simple worked example to illustrate Bonus share issue.

• Shares issued to existing shareholders by means of capitalizing reserves ie using reserves to increase the number of issued shares. In
• No money or cash passes at all but the shareholders do receive share certificates
• Often the arrangement is known as paper or scrip issue
• Provided all legal requirements are complied with and necessary resolutions passed the directors can use the balance on Share Premium Account for issuing bonus shares.

Illustration:

On 31 st December 20xx, the directors of ABC Ltd having complied with all necessary requirements use the credit balance on the Share Premium account to issue Bonus Shares at the rate of two new shares for every fifteen shares held.

Existing data of ABC Ltd before bonus shares issue:

(a)    Issued share capital comprises 150,000 ordinary shares of $1 each fully paid up $150,000

(b)   Credit balance on Share Premium Account is $20,000

Original Balance Sheet as at 31 st Dec BEFORE bonus share issued:

Issued share capital:

150,000 Ordinary shares of $1 each fully paid up $150,000

To compute bonus share issued:

Total ADDITIONAL BONUS SHARES = 150,000/15 x 2 = 20,000

Revised Total Number of shares after issue = 150,000 + 20,000

SHARE PREMIUM ACCOUNT

SHARE CAPITAL ACCOUNT

Revised Balance sheet  of ABC Ltd AFTER Bonus share issued:

170,000 ordinary shares of $1 each fully paid up  $170,000