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A bonus issue, or scrip issue, is a free issue of shares to shareholders in proportion to their holding paid for out of a company's accumulated profits or retained earnings. It is sometimes referred to as a capitalisation issue as the company is, in effect, changing capital reserves into share capital. An increase in one part of shareholders' funds, the share capital, is offset by a fall in another part, capital reserves or retained earnings. It is basically a book keeping exercise.
See also: Scrip Dividend, Rights Issue