EPS example 2

Hi, Have you attempted to do it yourself already? If not, then you need to so that we can then point out where you have gone wrong. It is better for your learning it we approach it in this way as opposed to me just giving you the answer. Once you've made an attempt then please let me know and I can help you. Thanks

Yes I have attempted the question myself. But because there are no rights issue so I didn't consider fraction. Then I checked the answer in the lecture notes and it did not match. Also I don't know what to do about restating the comparative part. Thanks

@smritigoyal said: Yes I have attempted the question myself. But because there are no rights issue so I didn't consider fraction. Then I checked the answer in the lecture notes and it did not match. Also I don't know what to do about restating the comparative part. Thanks

Yes would like clarity on the same issue, regarding the fraction use for a bonus issue.

Hi, There has been a bonus issue so we need to look at the bonus fraction. This is calculated as the number of shares after the issue divided by the number of shares prior to the issue. Here there is a one for two issue, which means that there was one in issue initially and two more issued giving three in issue after. The fraction is therefore 3/2 and is applied to the total number of shares in issue prior to the issue taking place. To restate the comparative the fraction is applied to the weighted average number of shares last year. Thanks

Thank you for the response. The confusion comes in that both in the lecture notes and the recorded lectures, it's stated that when a Bonus issue takes place, it is assumed the Bonus Issued shares have always been in issue and that the prior period figures are adjusted to reflect this and that fractions only apply to Rights Issues So given the above explanation, it then means that the above treatment only applies when there is no additional issue of shares prior to the bonus issue, in which case a fraction must be calculated for the bonus issue relating to the number of shares in issue prior to the additional shares issued and the number of new issued shared. Also, in the answer to this example (page 141 in the Notes), the fraction is 3/2 not 3/1 as per the above. Is this a typing error in your explanation? Apologies for the many questions, I'd just like to get clarity on this as exams are fast approaching and there are, at least as perceived by me, many contradictions with regards to this particular example and the information contained within the lecture notes and recorded lectures.

Hi, It was a typing error and I've updated it to 3/2. Thanks

I am still struggling with understanding the logic behind working the fraction. I understood that we got 3/2 by using formula Issue post bonus / issue pre bonus. However why do we have to work out the fraction based on post bonus issue and pre bonus issue. Doesnt the allocation by month itself provide weighted averages for calculation of EPS given an understanding that Bonus component is already built within the existing shares on date of issue. I am totally lost at understanding the underlying logic of fraction calculation and shall appreciate if you can help widen my understanding of this basic concepts?

Hi, Have you watched the associated videos for an explanation? The weighting by month does not take account of any bonus (free) issue of shares. You need to do both. Thanks

Same as [email protected], after watching the lecture and reading the notes I am not understanding why the bonus fraction is being utilized when calculating the full market issue portion??.

Also, Arnt bonus shares adjusted from the beginning of the year?