What effect does a bonus issue have on Basic EPS?

A bonus issue, also known as a scrip issue or capitalization issue, refers to the issuance of additional shares to existing shareholders free of charge, proportionate to their current holdings. This action does not involve receiving additional cash or payment from shareholders, hence the term "without any consideration for profits" is relevant.

The most direct effect of a bonus issue on Basic Earnings Per Share (EPS) is that it increases the number of ordinary shares outstanding. However, even though the number of shares increases, the total profit remains unchanged. This often results in a dilution effect on EPS, as the net income is divided by a greater number of shares, which leads to no real increase in the profit per share.

Understanding this context reinforces why the correct choice emphasizes that shares are issued to shareholders without any additional payment. Since this process doesn't affect the fundamental financial metrics derived from profits directly, it reflects a pure redistribution of value amongst current shareholders rather than an increase in total equity or assets.