Definition of bonus issue: A bonus share issue occurs when a firm gives more shares to existing shareholders in proportion to what percentage of the firm that they own. Bonus share issues are given free and are often an alternative to a dividend. They are seen as a signal of a profitable firm.
Reason for Bonus Issue
A bonus issue usually occurs because a firm want to brings its issued capital in line with its employed capital.
A bonus issues is also sometimes known as a scrip issue
Calculating Bonus Issue.
A one for Four Bonus Issue would involve giving shareholders one extra share for every four that they had. Therefore if a firm had 10,000 shares at £10 at each. The firm would issue an extra 2,500 share. Share capital would increase by £25,000