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victoria118.
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victoria118
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C plc has the following after-tax profits for its two most recent accounting periods:
£’000
Year to 31 October 2016 330
Year to 31 October 2017 341On 1 November 2015, the company’s issued share capital consisted of 500,000 ordinary shares. On 1 August 2017, the company made a 1 for 10 bonus issue.
Required
(a)Calculate the basic EPS for the year to 31 October 2017.
(b)Calculate the restated basic EPS for the year to 31 October 2016 and explain why this restatement is necessary.solution:
a.The bonus issue is 1/10 x 500,000 = 50,000
EPS:
500,000 * (7/12) =291666.7
550,000 * (3/12)=137500
Number of shares to be used 429166
EPS = 341,000/429,166 =79.46pb.
EPS for 2016:
EPS = 330,000/500,000 = 66pWas my answer right?
Chris
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For a bonus issue, the shares are treated as if they have always existed. So you simply divide the profit for the year by 550,000. 341,000 / 550,000 = 62p
For the comparative, you restate it using the number of shares after the bonus issue, so 330,000 / 550,000 = 60p.
You didn’t explain why this is necessary, but this is to improve comparability between the two figures.
Even if you did have to treat the shares as issued partway through the year, you used 3 months and 7 months and so ended up with less than 500,000 shares. Therefore your answer would still have been wrong.
victoria118
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So, sir, how should I answer this question?
victoria118
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Thank you sir, I understand it!
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