IAI Actuarial Core Principles · Business Finance · Structure and methods of financing a company
Which statement about a bonus (scrip) issue of ordinary shares is correct?
A bonus issue capitalises reserves into share capital and distributes new shares free to existing holders. No cash is raised and total shareholders' funds and net assets stay the same; only the split between capital and reserves changes.
- AIt raises fresh cash for the company from shareholders
- BIt capitalises reserves into share capital without changing total shareholders' fundsCorrect
- CIt reduces the number of shares and raises the share price
- DIt increases the company's net assets by the nominal value issued
- It is the same as a rights issue at a discount
Explanation
A bonus issue converts reserves into share capital and gives shareholders additional shares free. No cash is raised and total equity is unchanged; only its composition changes. Net assets are unaffected.
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