Separate paid capital from the embedded bonus element
Ind AS 33 Appendix A2 explains that a rights issue below fair value often contains a bonus element. For an issue offered to all existing shareholders, pre-rights share numbers are multiplied by fair value per share immediately before exercise divided by theoretical ex-rights fair value, or TERP. This guide, checked on 28 October 2026, develops that computation, distinct from pure splits, bonus issues and general comparative-restatement rules. Ind AS 33: paragraph 27(b), Appendix A2 and paragraphs 64 and 70.
Build TERP from value and actual subscription proceeds
A2 adds the aggregate fair value of shares immediately before exercise to the proceeds from exercise, then divides by shares outstanding after exercise. Obtain the entitlement ratio, subscription price, actual share quantities and fair-value evidence. Do not calculate TERP using face value or omit the cash raised. If rights trade separately, A2 specifies fair-value measurement at close of the last day shares trade together with the rights. Ind AS 33: paragraph 27(b), Appendix A2 and paragraphs 64 and 70.
Calculate the factor without premature rounding
Divide the appropriate pre-exercise fair value per share by TERP. Apply that factor to shares for periods before the rights issue. Keep the exact fraction or sufficient precision in the working. The number of new shares divided by old shares is not itself the bonus factor: a paid rights issue generally contains both a resource-raising element and, where discounted, a bonus element. Ind AS 33: paragraph 27(b), Appendix A2 and paragraphs 64 and 70.
Weight the issue-year denominator by actual timing
Apply the bonus factor to the appropriate pre-issue weighted period and use the actual post-issue shares for the subsequent period, consistently with the standard's timing rules. The half-year example expressly assumes a reasonable half-year approximation and no other share movements. Use the company's actual dates and necessary day weighting in a real computation. Do not automatically multiply the entire current-year denominator by the simple entitlement ratio. Ind AS 33: paragraph 27(b), Appendix A2 and paragraphs 64 and 70.
Keep numerator and diluted-EPS questions separate
The simple examples use verified ordinary-attributable earnings, one ordinary class and no other instruments. A2's denominator adjustment does not by itself add hypothetical profits from rights proceeds. Complete the applicable numerator, dilution and instrument-specific adjustments separately. Maintain separate-company and consolidated bases correctly; a correct TERP does not cure a numerator drawn from the wrong reporting entity. Ind AS 33: paragraph 27(b), Appendix A2 and paragraphs 64 and 70.
Reconcile comparative EPS and explain the change
Show the original share numbers, fair-value evidence, TERP, exact factor, restated pre-issue denominators and current weighted denominator. Link the calculation to the standard's paragraph 27(b), paragraph 64 where relevant and paragraph 70 reconciliations. Non-participation, changed terms, partly exercised offers or other special facts require their own supported analysis; the examples assume the stated offer to all existing shareholders is fully exercised. Ind AS 33: paragraph 27(b), Appendix A2 and paragraphs 64 and 70.
Applicable primary references
Ind AS 33: paragraph 27(b), Appendix A2 and paragraphs 64 and 70
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: Compute TERP and factor
Assume 12,00,000 old shares at fair value ₹100 and a fully exercised one-for-three rights issue at ₹40. New shares are 4,00,000, proceeds ₹1,60,00,000 and pre-issue value ₹12,00,00,000. TERP is ₹85. The factor is ₹100/₹85 = 20/17, approximately 1.17647059.
Illustrative example 2: Restate a comparative denominator
Using the same factor and original prior-period weighted shares 12,00,000, adjusted shares are 12,00,000 × 20/17 = 14,11,764.705882…. With stipulated earnings ₹24,00,000, comparative EPS is ₹1.70 rather than the unadjusted ₹2.00. Preserve precision until final rounding.
Illustrative example 3: Half-year issue weighting
Assume the same fully exercised offer occurs at an appropriate half-year weighting point and current earnings are ₹30,00,000. Denominator is (12,00,000 × 20/17 × 0.5) + (16,00,000 × 0.5) = 15,05,882.352941…. EPS is ₹1.9921875, rounded to ₹1.99.
Illustrative example 4: No discount in the simple model
Assume the same 12,00,000 old shares and one-for-three ratio but subscription price equals the stipulated fair value ₹100. TERP is ₹100 and factor 1.00. There is no bonus-factor increase to the pre-issue denominator in this model, although the actual new shares still affect post-issue weighting.
Illustrative example 5: One-for-one discounted rights
Assume 10,00,000 old shares at fair value ₹80 and 10,00,000 new rights shares at ₹40. TERP is ₹60 and factor 4/3. Prior weighted shares 10,00,000 become 13,33,333.333333…. On stipulated prior earnings ₹40,00,000, restated EPS is ₹3.00 rather than ₹4.00.
Illustrative example 6: Do not use the whole entitlement ratio as a free-bonus factor
For the first offer, multiplying the old 12,00,000 weighted shares by 4/3 would give 16,00,000 and prior EPS ₹1.50 on ₹24,00,000 earnings. The correct A2 model gives ₹1.70. The ₹0.20 difference demonstrates why paid rights and pure free bonus shares are not interchangeable.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Confirm Ind AS applicability | Reporting framework and share classes |
| 2 | Read the executed rights terms | Ratio, price, offer population and actual exercise |
| 3 | Verify share quantities | Pre-issue, new and post-issue shares |
| 4 | Establish fair-value timing | A2 measurement and separate-rights trading facts |
| 5 | Compute subscription proceeds | Actual fully exercised offer assumptions or necessary adjustments |
| 6 | Calculate TERP | Aggregate pre-value plus proceeds over post shares |
| 7 | Calculate the precise factor | Pre-exercise fair value divided by TERP |
| 8 | Adjust pre-issue periods | Comparative denominators and issue-year pre-period weighting |
| 9 | Complete EPS calculations | Correct earnings basis, actual post-period weighting and dilution review |
| 10 | Retain reconciliations | Evidence, exact workings, paragraph 70 bridges and final rounding |
Sixteen practitioner FAQs
1. Which guidance explains this rights factor?
Ind AS 33 Appendix A2.
2. Does every paid issue necessarily have a bonus element?
No. A below-fair-value rights issue often does; establish the actual facts.
3. Which offer population does A2's stated factor address?
A rights issue offered to all existing shareholders.
4. What is TERP's numerator?
Aggregate pre-exercise share fair value plus proceeds from exercise.
5. What is TERP's denominator?
The number of shares outstanding after exercise.
6. What is the bonus factor?
Pre-exercise fair value per share divided by TERP.
7. Can face value replace fair value automatically?
No. Obtain the relevant fair-value evidence.
8. What if rights trade separately before exercise?
Apply A2's last-cum-rights-trading-day fair-value measurement instruction.
9. Does the entitlement ratio alone equal the factor?
No. Paid proceeds matter to TERP and the embedded bonus element.
10. Which periods receive the factor?
The appropriate periods before the rights issue under A2.
11. Should actual post-issue shares be ignored?
No. They enter the subsequent issue-year weighted period.
12. Is half-year weighting compulsory?
No. It is an explicit reasonable approximation assumed in one model.
13. Does A2 create hypothetical profit from proceeds?
No. Establish the actual numerator under the standard separately.
14. Can a correct factor replace diluted-EPS analysis?
No. Complete the applicable instrument and dilution tests.
15. Do the examples cover partially exercised offers automatically?
No. They expressly assume full exercise and require separate analysis for other facts.
16. When should EPS be rounded?
After completing the precise factor, weighting and numerator calculations.
Conclusion
Calculate the bonus element in an all-shareholder rights issue and apply it to pre-issue periods without treating paid rights shares as a pure free bonus issue.