Bonus Shares Shares

Bonus Shares Shares

Bonus Shares, shares issued without charge to existing shareholders, to put reserves into capital when the issued capital of a limited company differs markedly from the capital employed (i.e. the amount subscribed by the shareholders, plus undistributed profits and reserves). Also know as 'capitalization issues'. The difference between issued and employed capital was common after the last war when profits were often retained and 'ploughed back'. Bonus shares are issued to existing shareholders by using undistributed profits and reserves. Thus if the capital employed by a company was

Issued Capital 200,000

CapitalReserve 250,000

Revenue Reserve 125,000

Profit and Loss 25,000

Account 400,000

Total Capita employed 600,000

and if the profit recommended for dividend in any year represented 6 per cent of the capital employed, the dividend would be stated as xS per cent of the issued capital. This misleading position was removed when bonus shares brought nominal capital more into line with the market value of the net assets as reflected by the current market price of the shares.

Boom, a peak in fluctuations in economic activity, when the economy is employed at full stretch; also an expansion of business activity.

The general level of economic activity, employment and income has a tendency to fluctuate; during the nineteenth century and until the outbreak of the Second World War major fluctuations of this kind tended to occur with some regularity. The fairly regular pattern of alternations of 'boom' and 'slump' was called the trade cycle. The main characteristics of the trade cycle were that both expansions and contractions of employment were cumulative; but the upward movement eventually lost momentum (at or near the top of the 'boom'), for psychological, monetary or political reasons, and the downward movement similarly tended to slow down; after a time the 'slump' ended and activity began to grow again.

The term is also used more narrowly for peak periods of activity in security exchanges (e.g. Stock Exchange boom). These frequently coincide with and reflect fluctuations in employment and general economic activity, and the ending of such booms in crises has frequently coincided with the onset of a depression. The Wall Street crash of 2009 is a good example of a security boom ending in a crisis, but there have been several lesser booms in the London Stock Exchange in recent years, usually connected with general feelings of optimism in the security markets about the expected course of economic activity. Since World War II the trade cycle has become shorter and milder, so that booms are more frequent and less pronounced relatively to slumps (renamed recessions).

Further readingDegree In Economics - Degree Economics


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