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The question states basic earnings per share is 6 cents for year ended 31/12/08. 10M shares in issue on 01/01/08, on 01/04/08 2M further shares issued at full market value (& I understand this gives a weighted average of 11.5M shares). Then on 31/10/08 it makes a 1 for 4 bonus issue. The answer in the book multiplies the bonus fraction of 5/4 by the weighted average 11.5M. But I don’t understand why the bonus fraction isn’t applied to the number of shares on 31/10/08 which was 12M.
Hi,
We apply the bonus fraction to all the shares held prior to the issues of the bonus shares. The shares issued as part of the bonus issue do not have the fraction applied to them as the fraction is adjusting for the free shares that we assume would always have been in issue, the shares just issued have the free shares already included.
Thanks
I don’t think that answers my question. I’m not trying to apply the fraction to the bonus shares. I think I should apply the fraction to the original 10m shares plus the 2m shares issued at full market value so a 1 for 4 bonus issue gives 3m extra shares. The answer in the book uses the weighted avg of the 10m original shares and the 2m shares issues later in the year, which is 11.5m. I don’t understand why they are applying the bonus fraction to the weighted average. On the day of bonus issue there were 12m shares so I think you should use that number
I don’t think that answers my question. I’m not trying to apply the fraction to the bonus shares. I think I should apply the fraction to the original 10m shares plus the 2m shares issued at full market value so a 1 for 4 bonus issue gives 3m extra shares. The answer in the book uses the weighted avg of the 10m original shares and the 2m shares issues later in the year, which is 11.5m. I don’t understand why they are applying the bonus fraction to the weighted average. On the day of bonus issue there were 12m shares so I think you should use that number
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