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Hi Mike. I’m having difficulty with this EPS question.
Waffle had share capital of $7.5 million in 50c equity shares at 1 october 2006. On 1 january 2007 it made an issue of 4 million shares at full market price immediately followed by a 1 for 3 bonus issue.
The financial statements at 30 september 2007 showed a profit for the year of $12 milllion.
What was EPS for the year?We only have to multiply the bonus fraction (4/3) with the October shares and not with the January ones because the bonus issue was immediately after that.
Am i right sir? Please guide me. Thanks very much.No, you’re wrong, sorry
Look at “the rules” in the course notes
Rule 1 “multiply ALL prior periods ….”
It’s not the time element that is important – think about it
You’re suggesting that “because the bonus issue was immediately after that.” we don’t need to multiply
But those January shares were in issue when the bonus issue was declared so those January shares would qualify to receive the 1 extra for every 3 held
If it hadn’t been “immediately after that.” what time gap would you expect to be necessary before you would start to think….
“Maybe I should multiply these by the bonus fraction because it’s now been 3 months” or possibly
“…..it’s now been a month”
or what about “….it’s now been 3 weeks”
Do you see what I’m getting at
Now try the question again and, if you’re still struggling, come back to me
Is this right Mike?
Shares period fraction Wanes
1 oct 2006 15,000,000 3/12 4/3 5,000,000
1 jan 2007 19,000,000 9/12 4/3 19,000,000
1 jan 2007 25,333,333 9/12 19,000,000
………………
43,000,000EPS= 12,000,000 / 43,000,000 = 28c
But the answer at the back is 50c. =(
Think about the 19 million shares in issue after that 4 million issued at full price
These 19 million get a bonus of 1 for 3
So for how long were there EXACTLY 19 million shares in issue?
Think about this!
Now, let me know what your answer is
So for how long were there EXACTLY 19 million shares in issue?
Is it zero ???
And only = 19,000 * 4/3Yes, it’s no time at all. The bonus shares were issued immediately after that 4,000,000 shares were issued at full price so the two lines in the table are:
1.10.06 15,000,000 3/12 4/3 5,000,000
1. 1.07 19,000,000 .0000001/12 4/3 –
1. 1.07 25,333,333 9/12 19,000,000Total weighted average 24,000,000
OK?
Hi Mike
there is this MCQ in the. June 2015 exams question number 13 i really want To understand how the depreciation charge was computed
ThanksFor a $12,000 asset with a 20 year life, depreciation is $12,000/ 20 = $600 per annum
In the year of revaluation, there is depreciation of 6 months before that revaluation takes place so that accounts for a further $300 depreciation
The asset now has a carrying value of:
$12,000 – ($3,600 + $300) = $8,100
It is revalued by $2,700 to $10,800 and depreciated over its remaining useful life
Before the revaluation, the asset had been depreciated for 6 years ($3,600 at the rate of $600 per year)
After revaluation, it has been depreciated for 6.5 years so it has a remaining useful life of 13.5 years (20 years original estimate – 6.5 years up to date of revaluation)
For the second 6 months of the year depreciation will be $10,800 / 13.5 for a full year and half that amount for the 6 months that we’re looking at
So $10,800 / 13.5 = $800 and half that amount is $400
Total depreciation for the year is therefore $300 + $400 = $700 = answer C
OK?
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