## AS 20: Right Issues – Bonus Element and Theoretical Ex-Right Price
A rights issue offers existing shareholders the right to buy new shares at a price below fair (market) value. Because the issue price is less than market price, a rights issue contains two elements:
1. Consideration element – shares effectively issued at fair value (treated like a normal fresh issue; time-weighted).
2. Bonus element – the free "gift" embedded in the discount (treated like bonus shares; no time weight, restated in prior year).
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### Step 1 – Calculate Theoretical Ex-Right Price (TERP)
$$\text{TERP} = \frac{\text{(Fair value of shares before right issue} \times \text{existing shares)} + \text{Amount received in right issue}}{\text{Total shares after right issue}}$$
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### Step 2 – Bifurcate right shares into Bonus vs. Consideration
$$\text{Shares issued for consideration} = \frac{\text{Funds raised}}{\text{TERP}}$$
$$\text{Bonus shares} = \text{Total right shares issued} - \text{Shares issued for consideration}$$
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### Step 3 – Compute EPS
| EPS figure | Treatment |
|---|---|
| Current year Basic EPS | WANES includes: opening shares (full year) + bonus shares (full year, no time weight) + consideration shares (time-weighted from issue date) |
| Prior year Basic EPS (Restated) | Restate WANES by adding the bonus element shares to the opening balance of that year |
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### ICAI Alternative Method (Adjustment Factor)
Instead of bifurcating shares, apply an adjustment factor to the pre-rights period:
$$\text{Adjustment Factor} = \frac{\text{Cum-Right Price (market price before)}} {\text{TERP}}$$
Multiply the shares outstanding before the rights issue by this factor; then add the full right-issue shares from the issue date (no bifurcation needed).