EPS – Basic EPS Introduction – ACCA Financial Reporting (FR)
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Need some solution for consolidation question (20 mark type)
Since Bonus shares don’t raise any finance, they cannot be related to the earnings of the year in which the bonus shares are issued. And as a result the bonus shares dilute the EPS. Am I right?
Hi,
Yes, the bonus issue increases the number of shares in issue but not the profits and so the EPS is reduced (try not to use the word diluted!), and that is then why we need to adjust the comparative to get a better reflection of the change in basic EPS as otherwise the reduction looks like it is attributable to the performance of the company when really it is due to the free issue of shares.
Thanks
great