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Hello Sir
How are you,
I wonder for the following question of EPS calculation it differs from what you showed in your lecture about the effect of bonus issue as the model answer is showing a fraction of 4/3 and also 4/12 month fraction but in your lecture you said we have to assume that the bonus issue is always there through the year ,can you please clarify that.
Thanks,
Q
120 On 1 January 20X4, Sam Co had 3 million ordinary shares in issue. On 1 June 20X4, Sam Co
made a 1 for 3 bonus issue. On 30 September 20X4, Sam Co issued a further 1 million shares
at full market price. Sam Co had profits attributable to ordinary equity holders of $2 million
for the year ended 31 December 20X4.
What is the basic earnings per share figure for the year ended 31 December 20X4, according
to IAS 33 Earnings Per Share?
A 47.1¢
B 52.2¢
C 56.8¢
D 50.0¢Answer
120 A
EPS = $2,000,000/4,250,000 (W1) = 47.1¢
(W1) Weighted average number of shares
Date Number
Fraction of
year
Bonus
fraction Weighted average
1 January 3,000,000 5/12 4/3 1,666,667
1 June 4,000,000 4/12 1,333,333
30 September 5,000,000 3/12 1,250,000
–––––––––
4,250,000
–––––––––Hi,
Have you tried answering the question using the method that we covered during the lectures? If you do then you should get the same answer. Have an attempt and see where you get to with it and then let me know. We can then see where you have gone wrong.
Thanks,
Hello Sir,
If I do it by the lecture way, then it will be in this way,
for the bonus issue
3m shares /3 =1m
Total = 3m+1 m =4m throughout the year
then for the full price issue
1 m
total shares will be 4 + 1 =5m
Weighted average shares 4m + (4m+1m )*3/12 months =5.25 m shares
EPS = $2m/5.25 m shares = $ 38.1 cents
but if we pro-rate the the full price issue alone 1m * 3/12= 025 m
then my total average shares = 4m+.25m =4.25m shares then the answer will be (2m/4.25m) =47.1 cents
Please clarify for me this matter as I feel that EPS calculation is a bit vague IFRS ,
Thanks a lot.
That’s a good attempt and it is the bonus issue that is tripping you up. Your calculation of the (4m + 1m) x 3/12 is correct, giving 1.25m.
With the bonus issue we now have 4m share in issue prior to the new share issue above, and we are assuming that they have been in issue since the start of the year, even though they were issued on 1 June. If that is the case then we will be time apportioning them by 9/12 (1 Jan to 30 Sept), being the time until the new issue took place, to give 3m.
Adding the two share figures together then gives the required weighted average figure.
Hope that helps clear it up. Let me know if you are still struggling.
Thanks
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