Occasionally a stock split occurs whereby the number of shares in a corporation is increased. For example, a 2-for-1 stock split doubles the number of outstanding shares. Each share is essentially divided into 2, such that each shareholder owns twice as many shares after the split occurs. All else being equal, the market capitalization will be unaffected, and each share will have a market value equal to half of the pre-split market value.
In terms of adjusted cost base, the total ACB is unaffected. However, the ACB per share decreases according to the split ratio. For example, suppose a shareholder owns 100 shares of Royal Bank (RY) with a total ACB of $5,000. The ACB is ($5,000/100 shares) = $50 per share. After a 2-for-1 split occurs, the shareholder will receive 2 shares for each share owned, resulting in 200 shares. The total ACB remains the same at $5,000. However, the ACB per share is now equal to ($5,000/200 shares) = $25 per share.
Although less common, reverse splits can also occur. For example a 1-for-2 ratio indicates that the number of shares will be cut in half. Similarly, the total ACB will remain the same but the ACB per share will increase accordingly.
AdjustedCostBase.ca supports the reporting of splits. Following the example above, a split transaction can be entered as follows:
The affect of this transaction on the ACB is shown here:
The number of shares is increased from 100 to 200, the total ACB remains the same, and the ACB per share changes from $50 to $25.