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Understanding 2-for-1 Stock Splits

A share split involves issuing additional shares to existing shareholders according to their percentage of ownership, which reduces the stated value per share. For example, a 2-for-1 split means each existing share with a value of P10 is exchanged for 2 shares valued at P5 each. A share split does not affect the total equity of the company. There are two types of share splits: a split up increases the number of shares by lowering the par value, while a split down or reverse stock split decreases the number of shares by increasing the par value. A share split is recorded through a memorandum entry only.

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158 views1 page

Understanding 2-for-1 Stock Splits

A share split involves issuing additional shares to existing shareholders according to their percentage of ownership, which reduces the stated value per share. For example, a 2-for-1 split means each existing share with a value of P10 is exchanged for 2 shares valued at P5 each. A share split does not affect the total equity of the company. There are two types of share splits: a split up increases the number of shares by lowering the par value, while a split down or reverse stock split decreases the number of shares by increasing the par value. A share split is recorded through a memorandum entry only.

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Julia Mae Albano
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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  • Share Split

SHARE SPLIT

A share split involves the issue of additional shares according to the percentage ownership of shareholders.
This results in a reduction in the stated value per share e.g., a 2-for-1 split means that
one share with a value of P10 will be exchanged for 2 shares each with a value of P5.
A share split does not effect the total equity of the company The purpose of a share split is to increase the
marketability of the shares by lowering the market price per share.
A share split does not affect the balance in shareholders’ equity accounts and therefore a formal journal entry
is not required.

Two kinds of Share Split

1. Split up - it involves the issue of additional shares according to the percentage ownership of
shareholders. This results in a reduction of par or stated value per share. Its purpose is to increase the
marketability of the shares by lowering the market price per share.

Note: A share split is recorded by memorandum entry only.


Illustration: JUNIKO Corp. has 100,000 shares issued and outstanding, with par value of P100. The board the
decided to split the shares 4 for 1.
Journal Entry: "Issued 400,000 new shares with par value of P25, as a result of 4-for-1 split of 100,000 old
shares with par value of P100".I means that a stockholder would receive 4 shares with a new par value of P25
for each shares held.
The effect of it increases the number of issued and outstanding shares to 400,000 shares and the par value is
reduced to P25.

2. Split down or Reverse stock split - it involves the cancellation of original shares issued and
replacing it by smaller number of shares which results in an increase in the par or stated value
per share. It is done when the market price of the shares are selling below its desired price.

Illustration: JUNIKO Corp. has 100,000 shares issued and outstanding, with par value of P100. The board
decided to split the shares 1 for 4.

Journal Entry: "Issued 25,000 new shares with par value of P400, as a result of 1-for-4 split of 100,000 old
shares with par value of P100".

The effect of it decreases the number of issued and outstanding shares to 25,000 shares and the par value is
increased to [Link]:
Share split does not affect total stockholders' equity of the company. It only affects the issued and outstanding
number of shares and its par or stated value.

Reference: A closer Look on Partnership and Corporation Accounting by Paul Anthony Dela Cruz

SHARE SPLIT A share split involves the issue of additional shares according to the percentage ownership of shareholders.

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