A bonus issue is also known as what?

A bonus issue is also known as what?

• A. Rights issue
• B. Stock split
• C. Dividend reinvestment plan
• D. Scrip or capitalisation issue

Answer: (D)

A bonus issue is a capitalisation action: the company uses its reserves or retained earnings to convert that amount into additional share capital and issues new shares to existing shareholders at no extra cost. Because it is funded from the company’s own profits and simply enlarges the share base, it is also called a scrip issue or a capitalisation issue. The overall value held by shareholders stays the same, but the number of shares increases and the price per share typically falls accordingly. This differs from a rights issue, which raises new funds by offering shares for cash to investors; a stock split, which merely increases the number of shares without tapping reserves; and a dividend reinvestment plan, which reinvests dividends into more shares rather than issuing new shares through capitalisation.

A bonus issue is a capitalisation action: the company uses its reserves or retained earnings to convert that amount into additional share capital and issues new shares to existing shareholders at no extra cost. Because it is funded from the company’s own profits and simply enlarges the share base, it is also called a scrip issue or a capitalisation issue. The overall value held by shareholders stays the same, but the number of shares increases and the price per share typically falls accordingly. This differs from a rights issue, which raises new funds by offering shares for cash to investors; a stock split, which merely increases the number of shares without tapping reserves; and a dividend reinvestment plan, which reinvests dividends into more shares rather than issuing new shares through capitalisation.