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Dear sir,
I need the workings for question 1 & 2 of IAS 33 – practice question
I have a solution for both of them but it doesn’t seem to be matched with a correct choice
My answer are:
Question1:
01/05/14 – 14/08/14(3.5 months) : equity shares of 252 million
15/08/14 – 30/09/14(1.5 months) : bonus issue 1 for 3 of 336m (252m x 4/3)
01/10/14 – 30/04/15(7 months) : rights issue 1 for 7 of 384m (336mx8/7)-> bonus fraction = 4/3
cum-rights price = 0.52×2 – 0.36 (exercise price) = 0.68
-> theorical ex-rights FV per share = (7×0.68+1×0.36)/8 = 0.64-> mkt value comparision = 0.68/0.64 = 1.0625
-> weighted average no. of share during the period
= (252m x 3.5/12 x 4/3 x 1.0625) + (336 m x 1.5/12 x 1.0625) + (384m x 7/12) = 372,750,000EPS = 70,000,000 / 372,750,000 = $ 0.1877 (????)
Question 2:
01/04/14 – 14/08/14(4.5 months): shares issue of 84m
15/08/14 – 31/10/14 (2.5 months): bonus issue of 117.6m (84m x 7/5)
01/11/14 – 31/12/14 (2 months): cash issue of 137.6m (117.6m+20)
01/01/15 – 31/03/15 (3 months): rights issue of 172m (137.6m x 5/4)->bonus fraction = 7/5
cum-rights price = 0.8×2 – 0.6 = $1
theorical ex-rights FV per share = (4×1 + 1×0.6)/5 = 0.92
-> mkt value comparision = 1/0.92 = 1.087
-> weighted average no. of share during the year = (84m x 4.5/12 x 7/5 x 1.087) + (117.6m x 2.5/12 x 1.087) + (137.6m x 2/12 x 1.087) + (172m x 3/12 ) = 142,496,733 (??????)
Can u lay out for me what’s wrong in my answer?
Your workings should read:
01/05/14 – 14/08/14(3.5 months) : equity shares of 252 million x 4/ 3 x 52/50 x 3.5/12
15/08/14 – 30/09/14(1.5 months) : 252 million + bonus issue 1 for 3 of 336m x 52/50 x 1.5/12
01/10/14 – 30/04/15(7 months) : 384m x 7/12-> bonus fraction = 4/3
cum-rights price = 7 shares x 0.52 = 3.64
rights issue 1 share x 36 = .36
combined 8 shares now worth $4.00
Terp = 50 centsRights fraction 52/50
My workings look like this:
1.5.14 252 x 3.5/12 x 4/3 x 52/50 = 101.920m
15.8.14 336 x 1.5/12 x 52/50 = 43.680m
1.11.14 384 x 7/12 = 224.000m
(You could combine the top two lines into 336 x 5/12 x 52/50 = 145.6m! Think about it)
Weighted average number of shares in issue 369.6m
EPS $70m / 369.6m = 18.94 cents
Question 2
“cum-rights price = 0.8×2 – 0.6 = $1
theorical ex-rights FV per share = (4×1 + 1×0.6)/5 = 0.92”
Heaven alone knows what you’re doing with this! Check out the course notes again to see how to calculate a rights fraction
Here are my workings for question 2 and note how I can combine the period from before the BONUS issue with the period after the bonus issue up until there is another change (issue at full price)
1. 4. 14 – 1.11.14 117.6m x 7/12 x 80/76 = 72,210,526
1.11.14 – 1.1.15 137.6 x 2/12 x 80/76 = 24,140,351
1.1.15 – 31.3.15 172 x 3/12 = 43,000,000
Weighted average number of equity shares in issue 139,350,877
oh i see
I thought mid-year mkt price was calculated = (cum-rights price + exercise price) / 2
Because i have saw your comment on the bottom explaining about mid-year price which is an average of 2 prices have been quoted on the stock exchange
It made me misleading
So for these 2 questions we will use mid-year mkt price as a cum-rights priceYes, with diluted EPS and options we need to distinguish with average price (mkt price) and exercise price (with assumption that the company is going to buy back these shares by money collected)
Thank u sir,
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