ACCA FR December 2026: EPS Rights Issues — Why Your Bonus Fraction Is Upside Down

A rights issue is part new cash, part free shares. If your FR EPS working only time-weights the new shares, you have missed the bonus element, and the answer is wrong.

The fix: work out the theoretical ex-rights price (TERP), apply the bonus fraction (actual cum-rights price ÷ TERP) to the shares in issue before the rights issue, and restate last year's EPS using the inverse.

Why rights issues trip up so many FR candidates

IAS 33 Earnings per Share treats three share issues differently. A full market price issue brings in new resources, so you time-weight it. A bonus issue brings in nothing, so you treat it as if it had always been there. A rights issue is a mix of the two: shares are sold below market price, so part of each new share is effectively free.

That free part is why IAS 33 requires the bonus fraction. Candidates who time-weight a rights issue as if it were a full price issue get an EPS figure that's too high. In an FR objective test question, the examiner will have put that figure in as one of the wrong options.

EPS turns up across the FR exam: as Section A and B objective test questions, as a line in the Section C statement of profit or loss, and in interpretation questions where you're asked why EPS has fallen even though profit went up. A rights issue part-way through the year is the usual answer to that last one.

Worked example: wrong vs right

Cowco has 10 million shares in issue on 1 January 2026. On 1 April 2026 it makes a 1 for 4 rights issue at $2.00. The market price just before the issue (cum-rights) was $3.00. Profit attributable to ordinary shareholders for the year to 31 December 2026 is $5.5 million. Last year's reported EPS was 50.0c.

Step 1: TERP. 4 shares × $3.00 = $12.00, plus 1 share × $2.00 = $2.00. That's 5 shares worth $14.00, so TERP = $2.80.

Step 2: Bonus fraction. Cum-rights price ÷ TERP = $3.00 ÷ $2.80.

The wrong answer (time-weighting only):
10m × 3/12 = 2.5m
12.5m × 9/12 = 9.375m
Weighted average = 11.875m shares, so EPS = 46.3c. That's wrong.

The right answer (bonus fraction applied before the issue):
10m × 3/12 × 3.00/2.80 = 2.679m
12.5m × 9/12 = 9.375m
Weighted average = 12.054m shares, so EPS = 45.6c. That's correct.

Step 3: Restate the comparative. Last year's 50.0c × 2.80/3.00 = 46.7c. Comparing 45.6c with the original 50.0c makes the fall look four times bigger than it really was. The restated figure is the one you compare against.

The three places the marks go

Inverting the fraction. The bonus fraction is always above 1, because it adds shares to the period before the issue. If your fraction comes out below 1, you've divided the wrong way round. On the prior year EPS you use the inverse, which is below 1 and brings the comparative down.

Using the rights price instead of the market price. The top of the fraction is the cum-rights market price ($3.00), not the $2.00 subscription price. Using $2.00/$2.80 gives a fraction below 1, and you've lost the mark.

Applying the fraction after the issue date. The bonus fraction only applies to the period before the rights issue. The 12.5m shares after 1 April are already at their post-issue level, so you just time-weight them.

What to do before December

1. Learn one test question. Ask yourself whether the company received full value for the shares. If it did, time-weight only. If it received nothing, apply the bonus to the whole period and the comparative. If it received some value (a rights issue), use the bonus fraction before the issue date and time-weight after it.

2. Lay out TERP the same way every time. Write "old shares × old price + new shares × rights price, divided by total shares" as a two-line working. In the CBE, use the spreadsheet response area so the marker can follow your workings and give method marks even if one number slips.

3. Practise the interpretation link. When a Section C scenario includes a rights issue, tell the marker that EPS fell because the share base grew and the new cash hasn't produced returns yet, and that the comparative has been restated. That shows the marker you understand what the number means, which is where the interpretation marks are.

The bottom line

FR pass rates have hovered around the 50% mark across 2026. EPS rights issue questions are some of the most predictable marks on the paper, yet candidates keep dropping them. Every time you see "rights issue" in the question, apply the bonus fraction before the issue and restate the comparative.