Last reviewed: July 2026.
A bonus issue gives existing shareholders additional shares without new cash. A rights issue offers existing shareholders the right to buy new shares, usually at a discount. Both increase the number of shares, but their accounting and economic effects differ.
Local company law determines authorisation, nominal value and reserve rules. IAS 32 and IAS 33 guide financial reporting classification, transaction costs and earnings per share.
Bonus issue versus rights issue
| Feature | Bonus issue | Rights issue |
|---|---|---|
| Cash raised | No | Yes, if shareholders subscribe |
| Source | Transfer within equity | New contribution from shareholders |
| Total equity at issue | Generally unchanged | Increases by net proceeds |
| Shareholder choice | Shares issued automatically to eligible holders | Rights may be taken up, sold, transferred or lapse |
| EPS effect | Retrospective share-number adjustment | May contain a bonus element requiring IAS 33 adjustment |
Bonus issue accounting
A bonus issue capitalises an eligible reserve. For a 100,000 CU bonus issue:
- Debit retained earnings or another eligible reserve 100,000 CU
- Credit share capital 100,000 CU
Total equity does not change, although its composition changes.
Bonus ratio example
A one-for-four bonus issue on 400,000 existing shares creates 100,000 new shares. No cash is received.
Each shareholder's proportionate ownership normally remains unchanged.
Rights issue accounting
A company offers one new share for every five held at 3 CU per share. If 200,000 rights shares are subscribed and nominal value is 1 CU:
- Debit cash 600,000 CU
- Credit share capital 200,000 CU
- Credit share premium or additional paid-in capital 400,000 CU
Issue costs
Directly attributable equity issue costs are deducted from equity, net of related tax effects. Costs should not be included in an asset or ordinary operating expense when IAS 32 requires equity treatment.
Why rights are discounted
A discount encourages participation and protects existing shareholders' opportunity to maintain ownership. The theoretical ex-rights price reflects the value transferred through the offer.
Theoretical ex-rights price
Five existing shares trade at 5 CU each and one new share is offered for 3 CU:
TERP = (5 × 5 + 1 × 3) ÷ 6 = 4.67 CU
The theoretical value of one right is approximately 5.00 − 4.67 = 0.33 CU, before market effects.
Earnings per share and bonus issues
IAS 33 adjusts the weighted average number of shares retrospectively for bonus issues and share splits because resources do not increase.
Comparative EPS is restated as though the bonus shares existed from the beginning of the earliest period presented.
Earnings per share and rights issues
A rights issue below fair value may contain a bonus element. IAS 33 uses an adjustment factor based on fair value before exercise and the theoretical ex-rights price.
Only the bonus element receives retrospective treatment; the paid-for element is time-weighted from issue.
Dilution and ownership
A shareholder who does not take up or sell rights may suffer ownership dilution. A bonus issue normally preserves proportional ownership because all eligible holders receive shares in the same ratio.
Journal entry controls
- verify shareholder eligibility and record date;
- approve ratio, price and reserve source;
- reconcile subscriptions and cash receipts;
- separate nominal value and additional equity;
- deduct qualifying transaction costs from equity;
- update the share register and EPS working.
Unsubscribed rights
Rights can lapse, be sold or be placed with other investors depending on the offer. Record only shares actually issued and cash received, plus any separately accountable proceeds or costs.
Underwritten rights issue
An underwriter may subscribe for shares not taken up. Underwriting fees are analysed as equity transaction costs when directly attributable to the issue.
Disclosure
Explain the number and class of shares issued, issue price, proceeds, costs, reserve transfers and EPS effects. Material dilution and purpose of fundraising are relevant to users.
Dividend and reserve implications
A bonus issue may reduce reserves available under local law, while a rights issue increases contributed equity. Neither should be confused with a cash dividend.
Review the dividend accounting guide.
Statement of changes in equity
Show the reserve transfer for a bonus issue and the gross proceeds, costs and net equity increase for a rights issue. Reconcile the number of shares and equity accounts.
Use the financial statements guide.
Shareholder communication controls
Confirm record dates, entitlement ratios, subscription deadlines, payment channels, underwriting terms and treatment of fractions. Reconcile registrar data to accounting entries.
Connection to share capital
Review the share capital accounting guide and the focused share premium article for equity presentation.
Fractions and rounding
Bonus and rights ratios can create fractional entitlements. The offer terms may round, aggregate and sell fractions, or provide cash compensation. Reconcile the final issued-share count and any fraction proceeds.
Common mistakes
- recording cash for a bonus issue;
- increasing total equity on a bonus issue;
- crediting all rights proceeds to share capital;
- expensing directly attributable equity issue costs;
- ignoring the rights issue bonus element in EPS;
- failing to update the legal share register;
- assuming tax treatment follows accounting automatically.
Key takeaway
A bonus issue rearranges equity without raising cash; a rights issue raises new equity. Record each correctly and adjust EPS for bonus shares and any rights issue bonus element.
Official references: IAS 32, IAS 33 Earnings per Share, and ACCA bonus and rights issue examples.