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Dear Sir,
I went through EPS lesson in Kaplan study text. However,when I was referring questions asked by others and the answers given by you in this forum, I noticed you using a different method to kaplan’s in calculating weighted average no of shares when there is a bonus issue. According to Kaplan, If there is only a bonus issue during the reporting period we should calculate EPS as if the bonus issue took place at the beginning of the earliest period and we need to restate the last year’s EPS accordingly.
However the method is different if there is both a bonus issue and a share issue. In that case we need to apply bonus fraction from the start of the year up until the date of bonus issue. For Example, please look at the following question and the answer given in Kaplan..
An entity had 1 million shares in issue on 1/1/20×1. They issued 200K shares at market value on 1 April, followed by a 1 for 5 bonus issue on 1 August, with a further 300K shares issued at market value in 1 October. Earnings for the YE 31/12/20×1 is $220K
Calculate the EPS.answer;
Date | No of Shares | Bonus fraction | Fraction of year | Total
1/1 1,000,000 6/5 3/12 300,000
1/4 1,200,000 6/5 4/12 480,000
1/8 1,440,000 – 2/12 240,000
1/10 1,740,000 3/12 435,000
————
No. of shares in EPS calculation 1,455,000Earnings = 220,000
EPS = 220,000/1,455,000 = 15.1 c per share.I think you are using a different method. I am doubtful whether it gives a different answer. 1st question of online practice questions regading EPS on your site is confusing. How to calculate it using Kaplna’s method?
Are you kidding me?
My method is EXACTLY the same as the one that you have posted
Answer to question 1 in the revision questions is confusing because of the limited amount of space available to write out the solution in the way that I demonstrate in the course notes
Sir, Could you please post the answer to that question here using the above method?
Ok, here goes
5 columns that I shall separate by “:”
Date: Number : Period : Fractions : WANES
1. 5.14 : 252,000,000 : 3.5/12 : 4/3 and 52/50 : 101,920,000
15. 8.14 : 336,000,000 : 1.5/12 : 52/50 : 43,680,000
1.10.14 : 384,000,000 : 7/12 : – : 224,000,000Total WANES 369,600,000
Earnings $70,000,000
Earnings / WANES = 18.94 cents EPS
Now, consider this – what if 15 August had been 3 August?
Where there is a bonus issue we can amalgamate the pre-and post- number / period into one line
So those top two lines become (and the whole calculation becomes):
1. 5.14 : 336,000,000 : 5/12 : 52/50 : 145,600,000
1.10.14 : 384,000,000 : 7/12 : – : 224,000,000Total WANES 369,600,000
Better?
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