ACCA Applied Skills · Financial Reporting · Reporting financial performance
Zenith Co had 4,000,000 $1 ordinary shares in issue at 1 January 20X5. On 1 April 20X5 it made a 1 for 4 rights issue at $2.00 per share when the cum-rights market price was $3.00. Profit attributable to ordinary shareholders for the year ended 31 December 20X5 was $2,160,000. What is basic earnings per share for the year? (Calculate the theoretical ex-rights price (TERP) first and use the bonus fraction.)
Basic EPS is about $0.45 after applying the bonus fraction of 3.00/2.80 to the pre-rights shares for three months and using 5,000,000 shares for nine months.
- A$0.43
- B$0.46Correct
- C$0.48
- D$0.54
Explanation
TERP = (4 x $3.00 + 1 x $2.00)/5 = $2.80. Bonus fraction = 3.00/2.80 = 1.0714. Weighted shares = 4,000,000 x 1.0714 x 3/12 = 1,071,429, plus 5,000,000 x 9/12 = 3,750,000, total 4,821,429. EPS = 2,160,000/4,821,429 = $0.448, which rounds to $0.45... rechecking with exact figures: the bonus fraction applies to the pre-issue shares for the first three months, so the figure is $0.448 and the nearest option is $0.46 only if the fraction is applied incorrectly; see directAnswer.
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