Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Exam paper Dec 2009: very…. very important !!!
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- November 20, 2011 at 7:26 am #50582
Hi
In the exam question paper December 2009, question 5, part (b) the DEPS is calculated as 34.1 c. I get 32.8 c. In the answer to the question they are calculating the adjusted no. of shares using the weighted average no. of shares (i.e. 43.25 m shares as a result of the rights issue) plus the conversion of shares. In my answer I used the total no. of shares after the rights issue (i.e. 45 m shares) plus the conversion shares. I agree to the calculations of the conversion shares and the adjusted earnings. However, I believe we should not use the weighted average number of shares as a result of the rights issue when calculating the adjusted number of shares for DEPS and we should be using the total number of shares after the rights issue instead. My reasons for this are:(1) The total number of shares after the rights issue is a “real” number of shares, and not an average; and
(2) The difference between calculated EPS and DEPS according to the solution is only 0.6 c (EPS: 34.7 c less DEPS: 34.1), which is too law if you think of the details of the convertible loan notes. Here I get the difference between EPS and DEPS 1.9 c (EPS: 34.7 less DEPS 32.8 C), which I believe is more realistic.
To support my grounds, I refer to the exam question paper June 2006 question “Torrent”, part (b). In the answer to this question they used the total number of shares after the rights issue in order to calculate adjusted number of shares for the purposes of DEPS, and they have not been using the weighted average number of shares as a result of the rights issue.
So, finally, my question is:
Why are they using the weighted average number of shares from the rights issue when calculating adjusted number of shares for the purposes of DEPS in the exam question no. 5, part (b) from December 2009???November 27, 2011 at 8:29 pm #89982because deps is trying to show what the historic earnings per share would have been if all the potential extra shares had been in issue with effect from the earliest date possible – at F7 more often than not, that date would be the first day of the accounting year
November 27, 2011 at 8:29 pm #89983because deps is trying to show what the historic earnings per share would have been if all the potential extra shares had been in issue with effect from the earliest date possible – at F7 more often than not, that date would be the first day of the accounting year
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