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Q: Fenton had 5,000,000 ordinary shares in issue on 1 January 20X1.
On 31 January 20X1, the company made a rights issue of 1 for 4 at $1.75. The cum rights price was $2 per share. On 30 June 20X1, the company made an issue at full market price of 125,000 shares. Finally, on 30 November 20X1, the company made a 1 for 10 bonus issue. Profit for the year was $2,900,000. The reported EPS for year ended 31 December 20X0 was 46.4c.
Required
What was the earnings per share figure for year ended 31 December 20X1 and the restated EPS for year ended 31 December 20X0?Hi sir Mike, this was a question from the bpp revkit. I am a little bit unsure of the solution of this question, of why they multiplied the bonus fraction to the rights issue to calculate weighted average no. of shares? I thought bonus fraction of 11/10 was only multiplied to previous EPS to restate the previous one, but not for year X1.
They did 5m x 1/12 x 2/1.95 x 11/10 + 6.25m x 5/12 x 11/10 + 6.375m x 5/12 x 11/10 + 7.0125m x 1/12 = total weighted average -> 6,840,918
so EPS for X1 : 2,900,000/6,480,918 = 42.4c
I understood the 2/1.95 part and everything else, except the x 11/10. Can’t you just multiply the 11/10 to the bonus (6.375m x 5/12 x 11/10) ? Could you please explain why do you have to multiply it to the rights issue part too ( 5m x 1/12 x 2/1.95 x 11/10 ) ?
Thank you sir.
What makes you think that the 5 million shares in issue for 1 month (January) and the 6,250,000 shares in issue for 5 months (February through May) should not also qualify for the bonus issue
If you hadn’t done the time apportionment of the fractions of a year, then the bonus fraction would have been applied to 6,375,000 shares for the full 11 months prior to the bonus issue
But you only want to apply the bonus fraction to 6,375,000 shares for just 5 months
Surely that can’t be right!
You post “I thought bonus fraction of 11/10 was only multiplied to previous EPS to restate the previous one, but not for year X1.”
In fact, it’s the RECIPROCAL of the bonus fraction (10/11) that is applied to the previous year’s EPS, not the bonus fraction (11/10) itself
Is that better?
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