- 15 Marks
FR – L2 – Q61 – Financial Statement Analysis
Question
On 1 January Year 5, Unity Vaccines Plc had 5 million ordinary shares in issue. The following transactions in shares took place during the next year.
1 February A 1 for 5 bonus issue
1 April A 1 for 2 rights issue at GH¢1 per share. The market price of the shares prior to the rights issue was GH¢4.
1 June An issue at full market price of 800,000 shares.
In Year 5 Unity Vaccines Plc made a profit before tax of GH¢3,362,000. It paid ordinary dividends of GH¢1,200,000 and preference dividends of GH¢800,000. Tax was GH¢600,500. The reported EPS for Year 4 was GH¢0.32.
Required
Calculate the EPS for Year 5, and the adjusted EPS for Year 4 for comparative purposes.
Answer
2 existing shares have a cum rights value of (2 × GH¢4) 8
1 new share is issued for 1
3 new shares have a theoretical value of 9
Theoretical ex Rights prices = GH¢9/3 = GH¢3
| Date | Number of shares | Time factor | Bonus fraction | Rights fraction | Weighted average number of shares | |
|---|---|---|---|---|---|---|
| 1 January | Brought forward | 5,000,000 | 1/12 | 6/5 | 4/3 | 666,667 |
| 1 February | Bonus issue (1 for 5) | 1,000,000 | ||||
| 6,000,000 | 2/12 | 4/3 | 1,333,333 | |||
| 1 April | Rights issue (1 for 2) | 3,000,000 | ||||
| 9,000,000 | 2/12 | 1,500,000 | ||||
| 1 June | Issue at full market price | 800,000 | ||||
| 31 December | Carried forward | 9,800,000 | 7/12 | 5,716,667 | ||
| 9,216,667 |
Earnings for Year 5 are (3,362,000 – 600,500 – 800,000) GH¢1,961,500
EPS Year 5 = 1,961,500 / 9,216,667 = GH¢0.21 or 21c
EPS Year 4 (adjusted) = GH¢0.32 × 3/4 × 5/6 = GH¢0.20 or 20c
- Topic: Financial Statement Analysis
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