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Advanced Accounting · AS 20 Earnings Per Share

AS 20: Bonus Issue, Rights Issue and Share Split Adjustments in EPS

Updated 4 October 2026 · Fact-checked

Under AS 20, a bonus issue or share split changes the number of shares without changing resources, so you restate all periods as if it happened at the start. A rights issue at a discount has a bonus element, which you adjust using the theoretical ex-rights fair value and a bonus factor.

Understand Bonus Issue, Rights Issue and Share Split Adjustments

EPS is profit for equity shareholders divided by the weighted average number of equity shares. The denominator must be comparable across years. If the share count changes without any change in the company's resources, the EPS of earlier years would look wrongly high or low unless you restate it.

A bonus issue and a share split raise the number of shares but bring in no cash. Nothing real has changed for shareholders. So AS 20 says you treat the new shares as outstanding for the whole period, and for all earlier periods shown. You do not weight them from the date of issue. Prior-period EPS is restated.

A rights issue at a price below the market price has two parts: a normal issue at fair value and a free bonus element. The bonus part is treated like a bonus issue, so it needs retrospective adjustment. The cash part is weighted from the date the cash is received. You separate the two using the theoretical ex-rights fair value per share (TERP) and the adjustment factor = fair value before the rights ÷ TERP.

A buyback is different. It reduces both shares and resources (cash goes out at fair value). So there is no restatement. You simply weight the reduced shares from the date of buyback.

If the bonus, split or rights issue happens after the year-end but before the financial statements are approved, the per-share figures for the current and prior periods are still based on the new share count. Disclose that fact.

Key rules to remember

Theoretical ex-rights fair value per share (TERP)
TERP = (Fair value of all shares before rights + Total amount received from rights) ÷ (Shares before rights + New shares issued in rights)
Fair value before rights is the market price just before the exercise date (cum-rights price) × old shares.
Adjustment (bonus) factor for rights issue
Factor = Fair value per share just before exercise of rights ÷ TERP
Factor is more than 1 when the rights price is below fair value. Multiply shares outstanding before the rights issue, and prior-year EPS divisor, by this factor.
Restated prior-period EPS for rights issue
Restated EPS = Previously reported EPS ÷ Adjustment factor
Equivalent to using the adjusted share count in the denominator.
Weighted shares in the rights issue year
(Shares before rights × Factor × Months before rights ÷ 12) + (Shares after rights × Months after rights ÷ 12)
Shares after rights = old shares + new shares. The factor applies only to the pre-rights period.
Bonus issue or share split
New shares are treated as outstanding for the whole period; restated prior EPS = Old EPS × Old shares ÷ New shares
No weighting by date. Apply to all periods presented.
Buyback
Weighted shares = Shares × time-weight, reducing shares from the buyback date
No retrospective restatement because resources leave the company.

How to solve Bonus Issue, Rights Issue and Share Split Adjustments questions

Use this order for any question that mixes bonus, rights, split or buyback with EPS.

  1. 1Write the timeline of share events: opening shares, each issue or buyback, its date and its type (bonus, split, rights, normal issue, buyback).
  2. 2Classify each event. Bonus and split: retrospective, no cash. Rights at a discount: part bonus, part fair-value issue. Buyback and normal issue: weight from the date of the cash movement.
  3. 3For a rights issue, compute TERP using the cum-rights price and the rights price, then the factor = cum-rights price ÷ TERP.
  4. 4Compute weighted average shares. Apply the bonus or split in full for the whole year. Apply the rights factor to shares before the rights date only, and time-weight each part.
  5. 5Divide the profit attributable to equity shareholders (after preference dividend and tax) by the weighted shares to get current-year EPS.
  6. 6Restate the prior-year EPS: divide by the rights factor, or by the bonus multiple, or recompute with the adjusted share count.
  7. 7State the answer with a one-line note on the adjustment, and disclose subsequent-event bonus, split or rights if relevant.

Quickest way: Fast route: classify, factor, weight

When to use it: Use when the question has one rights issue or bonus issue and asks for current and restated EPS in the exam.

  1. MCQs: a bonus or split means multiply the old share count and divide old EPS by the multiple. No time weighting.
  2. MCQs: for a rights issue, find TERP first. If the answer options differ only slightly, check that you applied the factor only to the pre-rights period.
  3. Buyback in the options? Remember no restatement and weight by date. Eliminate any option that restates prior EPS for it.
  4. Written answers: show TERP, the factor and the weighted share count as separate lines. Each line earns step marks even if a later arithmetic slip occurs.
  5. Show the restated prior-year EPS as old EPS ÷ factor, with the working visible.

Common mistakes in Bonus Issue, Rights Issue and Share Split Adjustments

  • Time-weighting bonus shares from the date of issue

    Students treat bonus shares like a fresh issue for cash.

    Fix: No cash comes in, so treat the bonus shares as outstanding from the start of the earliest period presented.

  • Using the rights issue price instead of TERP to compute the factor

    The rights price is the figure given, so it feels like the key number.

    Fix: Always compute TERP from the cum-rights market price and the rights price, then divide cum-rights price by TERP.

  • Applying the bonus factor to all shares, including the rights shares

    Students forget that the new shares were issued at the rights date.

    Fix: Apply the factor only to shares outstanding before the rights issue and only for the period before the rights date.

  • Not restating the prior-year EPS

    Students compute the current year and stop.

    Fix: Divide previously reported EPS by the factor (rights) or adjust for the bonus or split multiple. Show both years.

  • Restating EPS for a buyback

    Students confuse a buyback with a reverse bonus.

    Fix: A buyback uses up cash at fair value, so reduce shares only from the buyback date. Prior EPS stays unchanged.

  • Using total profit instead of profit for equity shareholders

    Focus on the share count makes students skip the numerator.

    Fix: Deduct preference dividend (and its tax where applicable) before dividing.

Worked examples

Example 1

A company had 10,00,000 equity shares on 1 April 2026. On 1 October 2026 it made a rights issue of 1 share for every 5 held at ₹40 per share. The market price of the share just before the rights issue was ₹50. Net profit for equity shareholders for 2026-27 was ₹54,00,000. EPS reported for 2025-26 was ₹4.50. Compute EPS for 2026-27 and the restated EPS for 2025-26.

Show the solution
  1. New shares = 10,00,000 ÷ 5 = 2,00,000. Cash received = 2,00,000 × ₹40 = ₹80,00,000.
  2. Fair value before rights = 10,00,000 × ₹50 = ₹5,00,00,000.
  3. TERP = (₹5,00,00,000 + ₹80,00,000) ÷ (10,00,000 + 2,00,000) = ₹5,80,00,000 ÷ 12,00,000 = ₹48.33 (approx.).
  4. Factor = 50 ÷ 48.3333 = 1.0345 (approx.). Exactly, 50 ÷ (145/3) = 150/145 = 1.03448.
  5. Weighted shares: before rights, 10,00,000 × 1.03448 × 6/12 = 5,17,241. After rights, 12,00,000 × 6/12 = 6,00,000. Total = 11,17,241 (approx.).
  6. EPS 2026-27 = ₹54,00,000 ÷ 11,17,241 = ₹4.83 (approx.).
  7. Restated EPS 2025-26 = ₹4.50 ÷ 1.03448 = ₹4.35 (approx.).

Answer: EPS for 2026-27 is about ₹4.83 and restated EPS for 2025-26 is about ₹4.35.

Example 2

On 1 April 2026 a company had 8,00,000 equity shares. On 1 July 2026 it issued bonus shares in the ratio 1:4. On 1 January 2027 it bought back 1,00,000 shares at fair value. Profit for equity shareholders for 2026-27 was ₹30,60,000. EPS reported for 2025-26 was ₹3.00. Find EPS for 2026-27 and the restated EPS for 2025-26.

Show the solution
  1. Bonus shares = 8,00,000 ÷ 4 = 2,00,000. Bonus-adjusted opening shares = 10,00,000, outstanding for the whole year.
  2. Buyback of 1,00,000 shares on 1 January 2027: shares fall to 9,00,000 for the last 3 months.
  3. Weighted shares = 10,00,000 × 9/12 + 9,00,000 × 3/12 = 7,50,000 + 2,25,000 = 9,75,000.
  4. EPS 2026-27 = ₹30,60,000 ÷ 9,75,000 = ₹3.14 (approx.).
  5. Restate 2025-26 EPS for the bonus only: ₹3.00 × 8,00,000 ÷ 10,00,000 = ₹2.40. The buyback does not affect it.

Answer: EPS for 2026-27 is about ₹3.14 and restated EPS for 2025-26 is ₹2.40.

Exam tips

  • Write TERP and the factor as separate lines. Examiners award marks for each, and a rounding slip later costs less.
  • Keep TERP and the factor to at least four decimals before the final EPS, or use fractions. Early rounding shifts the answer.
  • Read the date carefully. A bonus after the year-end but before approval still changes the share count for the year shown.
  • If the question gives a bonus and a rights issue together, apply each in the order it occurred and note which shares the factor applies to.
  • In MCQs, check whether the question asks for current EPS, restated prior EPS, or both. Options often include the unadjusted figure as a trap.

Practice questions from AS 20 Earnings Per Share

Bonus Issue, Rights Issue and Share Split Adjustments in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Bonus Issue, Rights Issue and Share Split Adjustments: frequently asked questions

Why is a bonus issue applied retrospectively but a normal issue is not?

A bonus issue brings in no new resources, so earning power per old share is unchanged in reality. Restating keeps EPS comparable. A normal issue brings in cash that earns profit only from the date received, so it is time-weighted.

What is the bonus element in a rights issue?

It is the discount of the rights price against the fair value. That discount is a free benefit to shareholders, like a bonus issue. TERP and the adjustment factor measure its effect on the share count.

Do I restate EPS for a share split?

Yes. A split increases shares without changing resources, so treat the new share count as outstanding for all periods presented. Restated prior EPS equals old EPS divided by the split multiple.

Does a buyback change prior-period EPS?

No. Cash leaves the company, so it is not a bonus-type event. You only reduce the weighted shares from the date of the buyback.