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- May 21, 2017 at 4:06 pm #387267
Hello dear tutor.
I have question regarding EPS calculation. (Kaplan)An entity had 1 million shares in issue on 1 January 20X1. They issued 200,000 shares at market value on 1 April, followed by a 1 for 5 bonus issue on 1 August, with a further 300,000 issued at market value on 1 October.
If profit for the year ending 31 December 20X1 is $220,000, what is the basic earnings per share?Answer is:
1 January 1,000,000*6/5*3/12=300,000
1 April 1,200,000*6/5*4/12=480,000
1 August 1,440,000* 2/12=240,000
1October 1,740,000*3/12=435,000
–––––––
Number of shares in EPS calculation 1,455,000
–––––––
The earnings per share for 20X1 would now be calculated as:
Original number 1,200,000
New issue (1 for 5) 240,000
–––––––––
New number 1,440,000
$220,000
–––––––––– = 15.1c
1,455,000But I calculated like this:
1m*6/5*3/12=0.3m
1.2m*6/5*4/12=0.48m
1.2m*2/12=0.2m
1.5m*3/12=0.375 m
and bonus issue 1.2m/5=0.24mtotal number of shares – 300 000+680 000+375 000+240 000=1 595 000 shares
I don’t understand these calculations:
1 August 1,440,000* 2/12=240,000
1October 1,740,000*3/12=435,000Time apportionment is applied to bonus issue. Why?
Thank you in advance for your help
May 21, 2017 at 6:01 pm #387287I agree with the table calculating the weighted average number of shares as being 1,455,000 …
… but what’s this!!!
“The earnings per share for 20X1 would now be calculated as:
Original number 1,200,000
New issue (1 for 5) 240,000
–––––––––
New number 1,440,000
$220,000
–––––––––– = 15.1c
1,455,000”In particular, what’s this 1,440,000?
“1 August 1,440,000* 2/12=240,000”
Why have you not included the bonus shares within the “number of shares in issue” after 1 August?
If you’re going to include the bonus fraction in those first 2 periods up to 31 July, you cannot then include 240,000 bonus shares for the full year
That bonus fraction automatically makes adjustment for the bonus issue for the periods prior to the bonus
Is it an issue for you to stick with the ‘normal’ way of doing the calculation?
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