- October 5, 2018 at 9:05 am
An entity had 1 million shares in issue on 1 January 20X1. They issued 200,000 shares at market value on 1 April, followed by a 1 for 5 bonus issue on 1 August, with a further 300,000 issued at market value on 1 October.
If profit for the year ending 31 December 20X1 is $230,000, what is the basic earnings per share?
1 January 1 000 000 ×6/5×3/12=300 000 Shares
1 April 1 200 000×6/5×4/12=480 000 shares
1 august 1 440 000 ×2/12= 240 000 shares
1 October 1 740 000×3/12= 435 000 shares
Total number of shares in EPS calculation = 1 455 000
I don’t understand the reason for multiplying by 6/5 for both January and April in working 1 and 2 above. kindly explainOctober 7, 2018 at 10:13 am
If we have a bonus issue if shares, where the share are issued with no cash received, then we need to adjust the shares that have previously been in issue, effectively assuming that the shares have always been in issue. The reason behind this is that the number of shares increase as a result of the bonus issue but the earnings will not have increased as no cash has been received, so when we compare to previous periods the EPS will not be comparable.
To make the adjustment we look at the number of shares in issue after divided by the number of shares in issue before. Here there will be six in issue afterwards and there would have been 5 in issue before.
ThanksOctober 10, 2018 at 10:20 pm
Hello there. I have got a question which I found in a question and would really appreciate if you could help me with explanation and working.
The question: a company has 10 million $1 shares with a market value 3 dollars per share. The company wishes to raise new funds using a 1-for-4 rights issue. The theoretical ex rights price per share is $2.80. How much new finance was raised by the rights issue?
Thank you for any help and explanation.October 13, 2018 at 10:18 pm
You would need to work backwards from the TERP to calculate the issue price, and then multiply your answer by the number of shares issued.
This is not a FR question though and would be more suited towards FM.
ThanksOctober 19, 2018 at 2:39 pm
Thank you very much. I have found this question in Becker revision material. Thought, it is a bit different question.October 19, 2018 at 4:44 pm
Well if it appears in the exam you’ll be OK with it but I very much doubt that it would make an appearance. Please let me know if it does!
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