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Waffle had share capital of $7.5 million in 50c equity shares at 1st October 20X6. On 1st January 20X7 it made an issue of 4 million share at full market price immediately followed by a 1 for 3 bonus issue.
The financial statements at 30 September 20X7 showed profit for the year of $12 million. What was the EPS for the year?The answer is:
Shares (‘000)
b/f (7,500/0.5) 15,000
Full market price issue (4000×9/12) 3,000
Bonus issue (18,000/3) 6,000
Total 24,000
EPS= $12,000/24,000= $0.5My question is how is the bonus shares calculated, i thought it should have been 19000/4, and why is there no adjustment of bonus fraction from the start to until the bonus issue?
Thanks in advance.There seems to be a mistake in the original answer.
The first mistake is on the computation of the bonus issue of shares. According to the solution above they are using 1/3 on the weighted 18,000 shares. it should have been on 19,000 shares ie 1/3 × 19,000shares). The 19,000,000 shares is the balance b/d (15,000,000) + full market price issue of 4,000,000.The number of shares existing before the bonus issue should be adjusted by the bonus fraction of 4/3 to assume that bonus shares have always been in issue.
Thanks, that seems about right. Where is this question coming from initially? Is it BBP/Kaplan or elsewhere? I only ask as we rarely see a combination of the share issue types within exam questions at this level.
Thanks
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