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Dear Tutor,
I have some questions regarding the answer in this exercise.
On 1 January 20X1 Saunders Co had 2,000,000 ordinary shares in issue.
On 30 April 20X1 the company issued at full market price, 270,000 ordinary shares.
On 31 July 20X1 the company made a rights issue of 1 for 10 at a rights price of $2.00. The fair value of the shares on the last day before the issue of shares from the rights issue was $3.10.
Finally, on 30 September 20X1 the company made a 1 for 20 bonus issue.
Profit for the year was $400,000.
The reported EPS for year ended 31 December 20X0 was 18.6c.Required
Calculate the EPS for year ended 31 December 20X1 and the restated EPS for year ended 31 December 20X0.The solution
DATE NARRATIVE SHARES TIME B F W/ AV
1/1/2011 2.000.000,00 4/12 3,10/3X21/20 723.333,00 30/4/2011 F MP 270.000/2.270.000 3/12 3,10/3 X21/20 615.738,00
31/7/2011 RIGHT 1/10 227.000/2.497.000 2/12 21/20
436.975,00
30/9/2011 BONUS 1/20 124.850/2.621.850 3/12 – 655.462,00
2.431.508,00QUESTIONS
1)Why don’t we add in the share calculation the full shares that are issued but only the extra shares ?example in full market price 2.000.000,00+270.000=2.270.000,00
2)Why don’t we calculate a bonus fraction in bonus issue ?
3)Why on rights issue in the bonus fraction column we don’t multiply with the price like we do in full market price and the existing shares but only with the bonus 21/20?
4)If the full market issue was after the bonus issue would we have calculated the whole table differently ?
Thank you and sorry for the overwhelming questions.
Hi,
It is a bit difficult to see what they have from the way the solution is presented but
1) The 2,270,000 should be pro-rated by 4/12, i.e. including the 270,000 new shares.
2) A bonus fraction should be calculated and applied to the shares in issue before the rights issue took place.
3) We calculate a rights issue fraction and apply it to the shares in issue before the rights issue took place.
4) You lay out the table in the order the share issues occur and then apply the same rules as above.
Thanks
DATE NARRATIVE SHARES TIME B F W/ AV
1/1/2011 2.000.000,00 04/12 3,10/3X21/20 723.333,00
30/4/2011 F MP 2.270.000 3/12 3,10/3 X21/20 615.738,00
31/7/2011 RT 1/10 2.497.000 2/12 21/20
436.975,00
30/9/2011 BONUS 1/20 2.621.850 3/12 655.462,00
2.431.508,00Hello sir,
I am still a bit confused with the order we calculate the bonus fraction the rights issue fraction the months and the share price.
I understand the layout in this table but i am afraid i will get mixed up if the order is different.
example if the bonus issue was applied after the rights issue.So to conclude:
1)We don’t calculate a bonus fraction for the rights issue even if the bonus fraction was applied after the rights issue ?
2)Do i always multiply the rights fraction with only the bonus fraction in this example 21/20?
Thank you.
Hi,
No, the bonus fraction is always applied to the shares in issue prior to the issue taking place. The rights issue fraction applied the same principle.
Thanks
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