1. Stock Splits and Stock Dividends (Bonus Issues)
Certain corporate actions change the total number of common shares outstanding without a corresponding change in the company’s net assets or resources. These include stock splits, reverse stock splits, and stock dividends (bonus shares).
 
2. Retrospective Adjustment Requirement
Because no new capital enters the company during these transactions, treating them like a normal cash share issuance would artificially lower the current period’s EPS, ruining historical comparability.
To prevent this, both frameworks mandate that stock splits and stock dividends must be treated as if they occurred at the beginning of the earliest prior period presented.
                           ┌───────────────────────────┐
                           │      Corporate Action     │
                           └─────────────┬─────────────┘
                                         │
                 ┌───────────────────────┴───────────────────────┐
                 ▼                                               ▼
     ┌───────────────────────┐                       ┌───────────────────────┐
     │  Cash Share Issuance  │                       │ Stock Split / Dividend│
     └───────────┬───────────┘                       └───────────┬───────────┘
                 │                                               │
        Time-weighted from                              Retrospectively adjust
        the exact date capital                          share pool back to day 1
        is received by firm.                            of earliest prior period.

  • Application: If a 2-for-1 stock split occurs on 1 December 2026, the accountant must double the share counts for the entire year of 2026, and restate the comparative 2025 and 2024 EPS figures reported in the footnotes to preserve trend line consistency.

 
PreviousNext