Bonus Issue – Illustration And Accounting Treatment ( Part 2 of 2)
In my first part of article, I have gone through the other details of bonus issue leaving only the illustration and the accounting treatment portion untouched.
So let’s look at the below simple illustration to demonstrate a pre and post bonus issue in a company’s balance sheet.
To reinforce the fact that my earlier article have mentioned that bonus issue is merely a juggling of bookkeeping entries and has NO impact to the shareholders fund in the balance sheet, let’s assume:-
The following scenario before any bonus issue:
Company has:
Ordinary share capital 10m no of shares $10 m
Capital Reserve $20 m
General Reserve $10 m
Total Shareholders Fund $ 40 m
If a company issue one to one bonus issue, the after bonus issue impact to the shareholders fund is as follows:
Ordinary share capital 20m no of shares $10m +$10m =$20m
Capital Reserve $20m – $10m =$10m
General Reserve ( assuming no change) $10m
Total Shareholders Fund $40m
The above illustration shows that there is no change in the balance sheet:
-
The total number of share have increased in this case by another 10million
- Shareholders fund remains unchanged during the pre- and post bonus period.
And,
The accounting entry is:
Debit: Capital Reserve 10m
Credit: Share Capital 10m
Being capitalization of reserve to share capital account.
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- AMolek ABORTS Proposed Rights, Bonus Issue
- Bonia Proposes Main Board Transfer, 1-for-2 bonus, Share Split
- Glossary Of Accounting & Finance Terms-Alphabet N
May 28, 2006
Posted in: Financial Strategy
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