ExpertHard2 marksMultiple Choice
ACCA · Question 11 · Earnings Per Share
Section A
Gamma PLC had 2,000,000 ordinary shares in issue on 1 January 20X5. On 1 April 20X5, it made a 1-for-4 bonus issue. On 1 October 20X5, it issued 300,000 shares at full market price. What is the weighted average number of shares to be used in calculating basic Earnings Per Share (EPS) for the year ended 31 December 20X5?
Section A
Gamma PLC had 2,000,000 ordinary shares in issue on 1 January 20X5. On 1 April 20X5, it made a 1-for-4 bonus issue. On 1 October 20X5, it issued 300,000 shares at full market price. What is the weighted average number of shares to be used in calculating basic Earnings Per Share (EPS) for the year ended 31 December 20X5?
Answer options:
A.
2,575,000
B.
2,800,000
C.
2,450,000
D.
2,500,000
How to approach this question
Apply the bonus fraction (5/4) to all shares outstanding BEFORE the bonus issue date. Then time-weight all balances.
Full Answer
A.2,575,000✓ Correct
Bonus issue is 1 for 4, so the bonus fraction is 5/4.
1 Jan to 31 Mar (3 months): 2,000,000 x 5/4 x 3/12 = 625,000.
1 Apr to 30 Sep (6 months): 2,500,000 x 6/12 = 1,250,000.
1 Oct to 31 Dec (3 months): 2,800,000 x 3/12 = 700,000.
Total weighted average = 625,000 + 1,250,000 + 700,000 = 2,575,000.
Common mistakes
Forgetting to apply the bonus fraction to the period before the bonus issue occurred.
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