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Bonus issue and EPS

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Bonus issue and EPS

  • This topic has 4 replies, 2 voices, and was last updated 3 years ago by alawi sayed.
Viewing 5 posts - 1 through 5 (of 5 total)
  • Author
    Posts
  • January 11, 2022 at 6:44 pm #645696
    alawi sayed
    Participant
    • Topics: 301
    • Replies: 352
    • ☆☆☆☆

    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
    –––––––––

    January 14, 2022 at 10:26 am #646015
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7163
    • ☆☆☆☆☆

    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,

    January 14, 2022 at 12:00 pm #646029
    alawi sayed
    Participant
    • Topics: 301
    • Replies: 352
    • ☆☆☆☆

    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.

    January 18, 2022 at 8:05 pm #646967
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7163
    • ☆☆☆☆☆

    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

    January 20, 2022 at 12:32 pm #647122
    alawi sayed
    Participant
    • Topics: 301
    • Replies: 352
    • ☆☆☆☆

    Thanks for clarification.

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