I know in both the cases the comapny`s mkt cap remains the same… Priced is adjusted according to the ratio… Number of shares outstanding gets increased/decresed according to the ratio… Bonus issue is an indication of the bullishness… The only differences is the paid up capital… Question 1 : In Bonus issue the paid up capital increases…HOW ??? Question 2 : In stock split the Paid up Capital remains the same…How?? Question 3 : is the Face value adjusted?..Yes/No Can some one pls explain and correct me if Im wrong n my assumptions Thanks in advance!!!
bonus issue - issue of free shares to existing shareholders. so total # of shares increases - and this increased number * par (face value) => causes paid up capital to increase. There is no change in par value of the stock in this case. stock split - company existing shares are divided into multiple shares. so if number of shares increases - the face value is reduced proportionately -> as a result paid up capital remains the same here.
Can you explain paid up capital? Also for the extra share that they give during bonus…the extra money for those shares is given by whom?..is it from comapny reserves, if yes then the company spends money in giving these shares?
bonus shares are issued free to existing shareholders. as a result of that - the total # of shares issued increases - and the “market cap” - which is # of shares issued * par value increases. this is instead of paying dividends - company is issuing bonus shares. 2 options the company has - a. declare a dividend per share, pay that to its shareholders. b. take the total declared dividend amount it would have paid, divide by par value of the shares - and say we will issue that much extra shares to the existing shareholders. either way it is the same. but in the 2nd case - the dividends were paid out (thro’ the shares) but the total capital of the company increased as a by-product. Paid up capital - is what the shareholders actually paid up to acquire the company’s shares. It is equal to the Par Value (Face Value) * # of Shares issued + any additional paid up capital. e.g. company has par value of 1$ per share, but issues share at 15$ per - e.g. and it has 1 Mill shares. Face Value = 1 Mill $ Additional Paid up = 14 Mill Total Paid up Capital = 15 Mill
why are you guys calling it paid up capital?
I think varundarji might be confused about the nature of the bonus issue transaction. The accounting double entry should be of some help. When a company announces a bonus issue, it capitalizes a part of its share premium account. i.e. Share Premium Acc Debit Share Capital Acc Credit Thats how the share capital increases. If the share premium account reaches a nil balance, the retained earnings reserve is used for this purpose.
Further, remember that bonus share is non-cash i.e. its only book accounting, no actual cash is involved.