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EPS – Basic EPS Example – ACCA Financial Reporting (FR)

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  1. The solution for example 2 was very confusing for me so I referred to the study text and found these rules

    Note: If you have an issue of shares at full market price and a bonus
    issue, you apply a bonus fraction from the start of the year up to the
    date of the bonus issue. For example, if the bonus issue was 1 share
    for every 5 owned, the bonus fraction would be 6/5 (as everyone who
    had 5 shares now has 6)
    This applicable to c part of example 1

    while the rule below is for
    Bonus and market issues combined (EXAMPLE 2)

    If a question gives both a bonus issue and an issue of shares at full price:
    ? apply the bonus fraction from the start of the year up until the date of the
    bonus issue
    ? time-apportion the number of shares to reflect the cash being received
    from the market issue.

    Chris has not uploaded any lecture for ex 2, so we have to use the above rules

    • update:
      seeing now its just your way of writing. where though there is a point after rather than before the digits since it as the cents (c) symbol at the end it is still read as cents only not dollars and cents.
      so unless you put the dollar sign ($) in front it is read as cents only.
      ok.

  4. This is definitely one of the more challenging areas of FR. It helped me get my head round it when I understood that the purpose of the rights fraction was to pretend the “free” shares had always been in issue so we can compare with earlier periods.

  5. in part c of example 1 you mentioned that for bonus issue the date is ignored and it is assumed that the bonus shares have always been in issue and accordingly we didn’t use weighted average approach for 125 shares, however in example 2 there is a bonus issue on 1st Dec of 2500 shares and as per the solution provided the bonus shares are weighted average for 4 months. Can you please clarify the approach to be followed with bonus shares?

  6. Dear Chris
    Thank you for your great and useful videos.
    I just have question. is it enough to study opentuition notes and watch your lectures to pass the exam or need to study Kaplan book too ?F7 paper is my first exam so I have stress. Please guide me. Thank you <3

  7. Thank you for your lectures,

    In part c of example 1 you mentioned that for bonus issue the date is ignored and it is assumed that the bonus shares have always been in issue and accordingly we didn’t use weighted average approach for 125 shares, however in example 2 there is a bonus issue on 1st Dec of 2500 shares and as per the solution provided the bonus shares are weighted average for 4 months. Can you please clarify the approach to be followed with bonus shares?

    Thanks in advance!

    • I think because the price of share after 1 Feb X6 that we calculated were $1.38 per share, this is the price before of the period from 1 Feb X6 and to the end of the year we didn’t have any change in the number of shares so, the price after are the same, Fraction = 1 and 600m*(5/12) = 250m

  10. Mr. Barlow.
    Can i trouble you with a question regarding example 1 d) at page 73 ?
    You did not cover this in your audio lecture, but the text of page 133 implies that the extra shares are 63M.
    I do not understand why we have to divide the 500m by 8
    Thank you in advance for your consideration.

    • 1 for 5 offered at £1.25 when the market value is £1.40

      So we are being offered 1share @ £1.25 = £1.25

      For every 5 share which cost us £1.40 each = £7

      So we now have 6 shares at a cost of £8.25 = 1.375

    • Hi ,

      Thanks for your nice lectures,

      In part d since there are 500m shares for the price of $ 1.4 and since the right issue happened on 1st Feb 2006 31,so calculating the no of shares from 1-Jul 2005 until 31 Jan 2006 for Seven months ,why not just to multiply 500 X 7/12 = 292m shares since that was before the issue

      and then we calculate the no of share after the right issue.

      Thanks,

  11. Greetings
    My challenge is, if there is a full market price issue just before the bonus issue how do i treat that? I am failing to grasp it, if a qtn has a full market price followed by bonus issue.

    • I think we would get the number of shares after bonus issue as a denominator for CY EPS (i.e. # at the beginning of the year + # full price issue + # bonus issue).

      BUT we should also restate PY EPS, by changing denominator (PY denominator + # bonus issue).

    • It’s given in the question: there was an issue of 1 share (@1.25) for each 5 shares (@1.40 – market price). Which means that shareholder who has 5 shares @1.40 received an additional 1 share @1.25. Which means he has 6 shares for the total price of 8.25

    • Hi,

      It is because each share issue is independent of the other, and so each part (a) to (d) is dealt with on an individual basis. It is important to understand how each issue of shares is dealt with individually before going on to anything more complex and a combination of the different scenarios.

      Thanks

    • Hi ,

      Thanks for your nice lectures,

      In part d since there are 500m shares for the price of $ 1.4 and since the right issue happened on 1st Feb 2006 31,so calculating the no of shares from 1-Jul 2005 until 31 Jan 2006 for Seven months ,why not just to multiply 500 X 7/12 = 292m shares since that was before the issue

      and then we calculate the no of share after the right issue.

      Thanks,

  15. Thanks for the video.i have a question . ,4000000 shares issued on 31.12.2001 of easch 25 cents.on 1.7.2002 the entity made a right issue 1 for 4 at 50 cents each.share price before the issue was $1,profit after tax 425000 and 320000 for the year ended 31.12.2002 and 31.12.2001 respevtively

    calculate eps for 2002(including compartive) can you please explain me?

    • Hi,

      If you’re only looking to start the ACCA qualification then you want to be starting with the earlier papers. I’d recommend that you start by visiting the ACCA website (www.accaglobal.com).

      Thanks

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