Transactions Affecting Shareholders' Equity

Steps:

• Recall total equity comprises share capital plus reserves (retained earnings and others).
• Evaluate each option: Does it increase, decrease, or leave unchanged the share capital or reserves?
• Identify changes from new capital inflows versus internal reclassifications or non-equity items.
• Confirm the option that directly adds to equity through external funding.

Why D is correct:

• Rights issue involves issuing new shares at a discount to existing shareholders for cash, increasing share capital per the accounting equation (Assets = Liabilities + Equity), directly raising total equity.

Why the others are wrong:

• A: Bonus issue transfers amounts from reserves to share capital, keeping total equity unchanged.
• B: Issue of debentures creates a long-term liability, not affecting equity.
• C: Proposed dividend is a future commitment; it does not yet reduce retained earnings or equity until formally declared.

Final answer: D