- 4 Marks
Question
Abu Ltd had 100,000 shares in issue, but then makes a 1 for 5 rights issue on 1 October 2017 at a price of GH¢1. The market value on the last day of quotation with rights was GH¢1.60. Total earnings are GH¢50,000 in 2017, and GH¢40,000 in 2016.
Required:
Calculate the Earnings per Share for the year ended 31 December 2017 and the corresponding figure for 2016 in accordance with IAS 33: Earnings per Share. (4 marks)
Answer
Calculation of theoretical ex-rights price:
| GH¢ | |
|---|---|
| Market value before issue (5 shares x GH¢1.60) | 8.00 |
| Rights issue (1 share x GH¢1.00) | 1.00 |
| Total value of 6 shares | 9.00 |
| Theoretical ex-rights price | GH¢1.50 per share |
EPS for 2016 (Restated for Rights Issue):
| EPS before rights issue | 40p (GH¢40,000 ÷ 100,000 shares) |
| Adjusted EPS (Restated for rights issue) | 40p x (1.50 ÷ 1.60) = 37.5p |
EPS for 2017:
| Number of shares before rights issue | 100,000 |
| Number of shares issued | 20,000 |
| Weighted average number of shares | (100,000 x 9/12) + (120,000 x 3/12) = 105,000 shares |
| EPS for 2017 | GH¢50,000 ÷ 105,000 = 47.6p |
(4 marks evenly spread)
- Tags: Earnings Per Share, EPS, IAS 33, Rights Issue
- Level: Level 2
- Topic: Financial Reporting Standards and Their Applications
- Series: MAY 2018
- Uploader: Dotse