Question

1. On 1 January 2019 Holmes had 1,200,000 ordinary shares in issue. On 31 March 2019, the company made a rights issue of 1 for 3 shares at $2. The market price of the share at the moment was $2.4. On 30 August 2019, the company made an issue at full market price of 50,000 shares. On 30 November 2019, Holmes made a 1 for 5 bonus issue. Profit for the year was $624,000. The reported EPS for year ended 31 December 2018 was 41.7c. Required What was the earnings per share figure for year ended 31 December 2019 and the restated EPS for year ended 31 December 2018?

Answer 1

EPS =   

Earnings AttributableToEquity shareholders Weighted Average No.of Shares

For, 2019,

Earnings attributable to equity share holders = $624,000 (Given)

Weighted Average No of Shares shall be calculated as follows:

First we need to calculate the Bonus element and Fair Value element of the Right Issue

Step 1 - Calculate the Theoretical Ex-Rights Price

Value of Holmes before right issue = 1,200,000 * 2.4 = $2,880,000

Cash raised from right issue = 1200000 / 3 *2 = $800,000

Value of Holmes after right issue = $ 2,880,000 + $ 800,000 = $3,680,000

Theoretical Ex-Rights Price per share = $3,680,000/ (1200000 + 400000) = 2.3

Step 2 - Calculate Fair Value Element and Bonus Element

Cash raised from rights issue = $800,000

Theoretical Ex-Rights Price per share = 2.3

Number of shares deemed to be issued at fair value = $800,000/ 2.3 = 347826

Number of shares deemed to be bonus shares = 400000-347826 = 52174

Weighted no of shares = 1200000 + 347826 * 9 / 12 + 52174 + 50000 * 4 / 12 + 330000 = 1859711

EPS = 624,000/ 1859711 = 0.33