Question & Answer: A bonus issue of shares has the following impact on the equity of a company: Select one: 1. total equity in…..

A bonus issue of shares has the following impact on the equity of a company: Select one: 1. total equity increases 2. total equity decreases 3. one equity account increases and another equity account decreases by an equal amount 4. only the amount of issued share capital changes

Expert Answer

 

Bonus shares do not directly affect a company’s performance. Bonus issue has following major effects.

1. Share capital gets increased according to the bonus issue ratio.
2. Liquidity in the stock increases.
3. Effective Earnings per share, Book Value and other per share values stand reduced.
4. Markets take the action usually as a favorable act.
5. Accumulated profits get reduced.
6. A bonus issue is taken as a sign of the good health of the company.

A bonus issue of shares has the following impact on the equity of a company when only the amount of issued share capital changes

hence option 4 is correct

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