How to enter Bonus Stocks

[SHAREVJ]

I received bonus stocks from one of my investment. How do I enter this transaction. If I enter it as split then the price is getting changed.

My case:

I have 100 Qty of Stock A at $10 per stock. Total investment would be $1000
Stock A announces a bonus of 1:1, i.e for every 1 stock they will give 1 additional quantity as bonus without any price.
Hence, after the bonus stock credited, my quantity of Stock A will become 200. However, since I got the bonus stock free of cost, my per stock price would be $5 and the investment remains same at $1000. Finally, I would have 200 qty of Stock at $5 per stock totaling to $1000 as investment.

Please advice how to enter in transaction.

[Mark]

Hi SHAREVJ,

If everyone received bonus shares, such that the market price dropped on the date of the issued shares, record this as a split. If only you received bonus shares, and the market price didn't change due to this, record it as a purchase at a cost of $0.

[SHAREVJ]

Hello Mark,

Everyone received bonus shares. Unlike stock split where the face value of the stock also gets reduced and price of stock drastically reduced to the extent of split, issuance of bonus shares will not change the face value of stock, however there may a slight dip in stock price due to increase in capital. Hence I can't enter it as split. I guess the only way around is to enter a transaction for a $0 value.

[Mark]

Hi SHAREVJ,

I didn't really follow this... Stocks don't have a "Face Value". If the company has a certain market cap (all outstanding shares times market price), and the company suddenly increases the total number of issued shares, the market price will usually correct, keeping the market cap roughly the same as before the new shares were issued. Maybe something else is happening I'm not following?

[SHAREVJ]

Hello Mark,

Typically, as see in my market, each stock has three values, face value (the value of each stock at which the original valuation was constituted), book value (the value of stock as per the company records after the calculation of liability and assets) and the last, market price (price of the stock in secondary market where trading takes place). Market cap, as you mentioned, all outstanding shares times market price.

While issuing bonus shares to share holders, companies issue shares at $0 value to their share holders and allotment quantity depends on the quantity each share holder has it in his account. In my case, I had 100 quantities and the bonus was announced for 1:1 that is, for every share I hold the company issues one free share to me, hence my total quantity will become 200 after the bonus issue. In general the difference between the stock split and bonus is, in stock split the face value of the stock gets split and its effect will be in book value and market price, however the market cap will remain same. Whereas in bonus issue, market cap comes down little due to the drop in market cap but face value remains same. You may please check in wiki or investopedia.

Theory behind, I entered the transaction with $0 value for the quantity for the time being.

[Mark]

Hi SHAREVJ,

Okay, thanks for the explanation. Glad you found a solution that works for you.