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Asking a question about issue bonus

Forums › ACCA Forums › ACCA FR Financial Reporting Forums › Asking a question about issue bonus

  • This topic has 3 replies, 2 voices, and was last updated 7 years ago by victoria118.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • November 12, 2017 at 5:09 pm #415438
    victoria118
    Member
    • Topics: 2
    • Replies: 2
    • ☆

    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 341

    On 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 =79.46p

    b.
    EPS for 2016:
    EPS = 330,000/500,000 = 66p

    Was my answer right?

    November 12, 2017 at 7:36 pm #415442
    Chris
    Member
    • Topics: 7
    • Replies: 600
    • ☆☆☆☆

    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.

    November 12, 2017 at 7:50 pm #415443
    victoria118
    Member
    • Topics: 2
    • Replies: 2
    • ☆

    So, sir, how should I answer this question?

    November 12, 2017 at 8:07 pm #415445
    victoria118
    Member
    • Topics: 2
    • Replies: 2
    • ☆

    Thank you sir, I understand it!

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    Posts
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