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CMA Intermediate · Corporate Accounting and Auditing · Earnings per Share (Ind AS 33)

Which statement about a rights issue offered to all existing shareholders is correct under Ind AS 33?

Shares outstanding before the rights issue are multiplied by the fair value per share immediately before the exercise of rights divided by the theoretical ex-rights fair value per share. This adjusts for the bonus element in the rights issue for all periods before the issue.

  1. AShares before the rights issue are multiplied by fair value immediately before exercise divided by theoretical ex-rights fair valueCorrect
  2. BNo adjustment is ever required because proceeds are received
  3. CShares before the issue are multiplied by theoretical ex-rights value divided by fair value before exercise
  4. DPrior-period EPS is left unchanged and only current EPS is adjusted

Explanation

The rights issue has a bonus element when the exercise price is below fair value. The number of shares outstanding before the issue is multiplied by fair value immediately before exercise divided by the theoretical ex-rights fair value. The inverted factor would reduce shares, which is wrong.

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