How does the prior year comparative EPS get adjusted after a bonus issue?

When a bonus issue occurs, it involves the distribution of additional shares to existing shareholders without any additional payment. This process does dilute the earnings per share because the same total earnings are now spread over a larger number of shares. Therefore, for better comparability and to provide a true reflection of the earnings per share over time, the prior year’s EPS must be adjusted to reflect the assumption that the bonus shares had been in issue for all relevant periods.

By adjusting the prior year comparative EPS to incorporate the bonus shares, users of the financial statements can gauge performance consistently across accounting periods. This adjustment ensures that the calculated EPS is comparable and meaningful, considering the increased number of shares. Essentially, it provides a clearer picture of the company's profitability and performance by conforming past figures to the current share structure as if the bonus shares had always been in issuance.